Correlation Between Leader Electronics and Advantech

Can any of the company-specific risk be diversified away by investing in both Leader Electronics and Advantech at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Leader Electronics and Advantech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leader Electronics and Advantech Co, you can compare the effects of market volatilities on Leader Electronics and Advantech and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Leader Electronics with a short position of Advantech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leader Electronics and Advantech.

Diversification Opportunities for Leader Electronics and Advantech

-0.41

Correlation Coefficient

Leader Electronics  Advantech

Very good diversification

The 3 months correlation between Leader and Advantech is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech and Leader Electronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Leader Electronics are associated (or correlated) with Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of Leader Electronics i.e., Leader Electronics and Advantech go up and down completely randomly.

Pair Corralation between Leader Electronics and Advantech

Assuming the 90 days trading horizon Leader Electronics is expected to under-perform the Advantech. But the stock apears to be less risky and, when comparing its historical volatility, Leader Electronics is 1.04 times less risky than Advantech. The stock trades about -0.06 of its potential returns per unit of risk. The Advantech Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  35,500  in Advantech Co on December 11, 2024 and sell it today you would earn a total of  3,950  from holding Advantech Co or generate 11.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Leader Electronics  vs.  Advantech Co

Leader Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leader Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Advantech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leader Electronics and Advantech

The main advantage of trading using opposite Leader Electronics and Advantech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leader Electronics position performs unexpectedly, Advantech can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Advantech will offset losses from the drop in Advantech's long position.

The idea behind Leader Electronics and Advantech Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.