Correlation Between Leader Electronics and Action Electronics

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

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

Diversification Opportunities for Leader Electronics and Action Electronics

0.14

Correlation Coefficient

Leader Electronics  Action Electronics

Average diversification

The 3 months correlation between Leader and Action is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and Action Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action Electronics 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 Action Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Electronics has no effect on the direction of Leader Electronics i.e., Leader Electronics and Action Electronics go up and down completely randomly.

Pair Corralation between Leader Electronics and Action Electronics

Assuming the 90 days trading horizon Leader Electronics is expected to generate 1.16 times more return on investment than Action Electronics. However, Leader Electronics is 1.16 times more volatile than Action Electronics Co. It trades about -0.08 of its potential returns per unit of risk. Action Electronics Co is currently generating about -0.34 per unit of risk. If you would invest  1,520  in Leader Electronics on October 24, 2024 and sell it today you would lose (75.00) from holding Leader Electronics or give up 4.93% of portfolio value over 90 days.

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

Leader Electronics  vs.  Action Electronics Co

Leader Electronics

Risk-Adjusted Performance

0 of 100

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Action Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Action Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Action Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Leader Electronics and Action Electronics

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

The idea behind Leader Electronics and Action Electronics 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.