Correlation Between Leader Electronics and Ruentex Engineering

Can any of the company-specific risk be diversified away by investing in both Leader Electronics and Ruentex Engineering 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 Ruentex Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leader Electronics and Ruentex Engineering Construction, you can compare the effects of market volatilities on Leader Electronics and Ruentex Engineering 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 Ruentex Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leader Electronics and Ruentex Engineering.

Diversification Opportunities for Leader Electronics and Ruentex Engineering

-0.1

Correlation Coefficient

Leader Electronics  Ruentex Engineering

Good diversification

The 3 months correlation between Leader and Ruentex is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and Ruentex Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Engineering 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 Ruentex Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Engineering has no effect on the direction of Leader Electronics i.e., Leader Electronics and Ruentex Engineering go up and down completely randomly.

Pair Corralation between Leader Electronics and Ruentex Engineering

Assuming the 90 days trading horizon Leader Electronics is expected to generate 1.53 times less return on investment than Ruentex Engineering. But when comparing it to its historical volatility, Leader Electronics is 1.19 times less risky than Ruentex Engineering. It trades about 0.25 of its potential returns per unit of risk. Ruentex Engineering Construction is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  15,850  in Ruentex Engineering Construction on December 5, 2024 and sell it today you would earn a total of  1,950  from holding Ruentex Engineering Construction or generate 12.3% return on investment over 90 days.

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

Leader Electronics  vs.  Ruentex Engineering Constructi

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 fairly stable basic indicators, Leader Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Ruentex Engineering

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ruentex Engineering Construction are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Ruentex Engineering showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leader Electronics and Ruentex Engineering

The main advantage of trading using opposite Leader Electronics and Ruentex Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leader Electronics position performs unexpectedly, Ruentex Engineering 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 Ruentex Engineering will offset losses from the drop in Ruentex Engineering's long position.

The idea behind Leader Electronics and Ruentex Engineering Construction 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.