Correlation Between Leader Electronics and GlobalWafers

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

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

Diversification Opportunities for Leader Electronics and GlobalWafers

0.7

Correlation Coefficient

Leader Electronics  GlobalWafers

Poor diversification

The 3 months correlation between Leader and GlobalWafers is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and GlobalWafers Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlobalWafers 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 GlobalWafers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlobalWafers has no effect on the direction of Leader Electronics i.e., Leader Electronics and GlobalWafers go up and down completely randomly.

Pair Corralation between Leader Electronics and GlobalWafers

Assuming the 90 days trading horizon Leader Electronics is expected to generate 1.74 times more return on investment than GlobalWafers. However, Leader Electronics is 1.74 times more volatile than GlobalWafers Co. It trades about 0.05 of its potential returns per unit of risk. GlobalWafers Co is currently generating about 0.01 per unit of risk. If you would invest  1,000.00  in Leader Electronics on September 12, 2024 and sell it today you would earn a total of  650.00  from holding Leader Electronics or generate 65.0% return on investment over 90 days.

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

Leader Electronics  vs.  GlobalWafers 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 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.

GlobalWafers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalWafers Co 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.

Pair Trading with Leader Electronics and GlobalWafers

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

The idea behind Leader Electronics and GlobalWafers 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.