Correlation Between Etron Technology and Faraday Technology

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

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

Diversification Opportunities for Etron Technology and Faraday Technology

0.82

Correlation Coefficient

Etron Technology  Faraday Technology

Very poor diversification

The 3 months correlation between Etron and Faraday is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Etron Technology and Faraday Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Technology Corp and Etron Technology 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 Etron Technology are associated (or correlated) with Faraday Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Technology Corp has no effect on the direction of Etron Technology i.e., Etron Technology and Faraday Technology go up and down completely randomly.

Pair Corralation between Etron Technology and Faraday Technology

Assuming the 90 days trading horizon Etron Technology is expected to generate 1.54 times more return on investment than Faraday Technology. However, Etron Technology is 1.54 times more volatile than Faraday Technology Corp. It trades about 0.16 of its potential returns per unit of risk. Faraday Technology Corp is currently generating about 0.2 per unit of risk. If you would invest  3,365  in Etron Technology on September 28, 2024 and sell it today you would earn a total of  310.00  from holding Etron Technology or generate 9.21% return on investment over 90 days.

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

Etron Technology  vs.  Faraday Technology Corp

Etron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Faraday Technology Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faraday Technology 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 Etron Technology and Faraday Technology

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

The idea behind Etron Technology and Faraday Technology 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.