Correlation Between Yem Chio and Darfon Electronics

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

By analyzing existing cross correlation between Yem Chio Co and Darfon Electronics Corp, you can compare the effects of market volatilities on Yem Chio and Darfon 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 Yem Chio with a short position of Darfon Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yem Chio and Darfon Electronics.

Diversification Opportunities for Yem Chio and Darfon Electronics

0.78

Correlation Coefficient

Yem Chio  Darfon Electronics

Poor diversification

The 3 months correlation between Yem and Darfon is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Yem Chio Co and Darfon Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darfon Electronics Corp and Yem Chio 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 Yem Chio Co are associated (or correlated) with Darfon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darfon Electronics Corp has no effect on the direction of Yem Chio i.e., Yem Chio and Darfon Electronics go up and down completely randomly.

Pair Corralation between Yem Chio and Darfon Electronics

Assuming the 90 days trading horizon Yem Chio Co is expected to generate 0.83 times more return on investment than Darfon Electronics. However, Yem Chio Co is 1.21 times less risky than Darfon Electronics. It trades about 0.03 of its potential returns per unit of risk. Darfon Electronics Corp is currently generating about 0.02 per unit of risk. If you would invest  1,450  in Yem Chio Co on September 29, 2024 and sell it today you would earn a total of  275.00  from holding Yem Chio Co or generate 18.97% return on investment over 90 days.

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

Yem Chio Co  vs.  Darfon Electronics Corp

Yem Chio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yem Chio 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.

Darfon Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darfon Electronics Corp 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 Yem Chio and Darfon Electronics

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

The idea behind Yem Chio Co and Darfon Electronics Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.