Correlation Between Asia Electronic and Microelectronics

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

By analyzing existing cross correlation between Asia Electronic Material and Microelectronics Technology, you can compare the effects of market volatilities on Asia Electronic and Microelectronics 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 Asia Electronic with a short position of Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Electronic and Microelectronics.

Diversification Opportunities for Asia Electronic and Microelectronics

0.24

Correlation Coefficient

Asia Electronic  Microelectronics

Modest diversification

The 3 months correlation between Asia and Microelectronics is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Asia Electronic Material and Microelectronics Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microelectronics Tec and Asia Electronic 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 Asia Electronic Material are associated (or correlated) with Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microelectronics Tec has no effect on the direction of Asia Electronic i.e., Asia Electronic and Microelectronics go up and down completely randomly.

Pair Corralation between Asia Electronic and Microelectronics

Assuming the 90 days trading horizon Asia Electronic Material is expected to generate 0.36 times more return on investment than Microelectronics. However, Asia Electronic Material is 2.77 times less risky than Microelectronics. It trades about -0.01 of its potential returns per unit of risk. Microelectronics Technology is currently generating about -0.16 per unit of risk. If you would invest  2,010  in Asia Electronic Material on December 2, 2024 and sell it today you would lose (10.00) from holding Asia Electronic Material or give up 0.5% of portfolio value over 90 days.

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

Asia Electronic Material  vs.  Microelectronics Technology

Asia Electronic Material

Risk-Adjusted Performance

Very Weak

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

Microelectronics Tec

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microelectronics Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Microelectronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Asia Electronic and Microelectronics

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

The idea behind Asia Electronic Material and Microelectronics Technology 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.