Correlation Between Advanced Ceramic and Leader Electronics

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

By analyzing existing cross correlation between Advanced Ceramic X and Leader Electronics, you can compare the effects of market volatilities on Advanced Ceramic and Leader 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 Advanced Ceramic with a short position of Leader Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Ceramic and Leader Electronics.

Diversification Opportunities for Advanced Ceramic and Leader Electronics

0.46

Correlation Coefficient

Advanced Ceramic  Leader Electronics

Very weak diversification

The 3 months correlation between Advanced and Leader is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Ceramic X and Leader Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Electronics and Advanced Ceramic 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 Advanced Ceramic X are associated (or correlated) with Leader Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Electronics has no effect on the direction of Advanced Ceramic i.e., Advanced Ceramic and Leader Electronics go up and down completely randomly.

Pair Corralation between Advanced Ceramic and Leader Electronics

Assuming the 90 days trading horizon Advanced Ceramic X is expected to under-perform the Leader Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Ceramic X is 1.09 times less risky than Leader Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Leader Electronics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,850  in Leader Electronics on December 2, 2024 and sell it today you would lose (250.00) from holding Leader Electronics or give up 13.51% of portfolio value over 90 days.

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

Advanced Ceramic X  vs.  Leader Electronics

Advanced Ceramic X

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Advanced Ceramic and Leader Electronics

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

The idea behind Advanced Ceramic X and Leader Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.