Correlation Between Motorcar Parts and Power Integrations

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

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

Diversification Opportunities for Motorcar Parts and Power Integrations

-0.26

Correlation Coefficient

Motorcar Parts  Power Integrations

Very good diversification

The 3 months correlation between Motorcar and Power is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Motorcar Parts of and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations and Motorcar Parts 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 Motorcar Parts of are associated (or correlated) with Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of Motorcar Parts i.e., Motorcar Parts and Power Integrations go up and down completely randomly.

Pair Corralation between Motorcar Parts and Power Integrations

Assuming the 90 days horizon Motorcar Parts of is expected to generate 2.07 times more return on investment than Power Integrations. However, Motorcar Parts is 2.07 times more volatile than Power Integrations. It trades about 0.14 of its potential returns per unit of risk. Power Integrations is currently generating about -0.07 per unit of risk. If you would invest  750.00  in Motorcar Parts of on December 21, 2024 and sell it today you would earn a total of  300.00  from holding Motorcar Parts of or generate 40.0% return on investment over 90 days.

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

Motorcar Parts of  vs.  Power Integrations

Motorcar Parts

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Motorcar Parts of are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Motorcar Parts reported solid returns over the last few months and may actually be approaching a breakup point.

Power Integrations

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Integrations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Motorcar Parts and Power Integrations

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

The idea behind Motorcar Parts of and Power Integrations 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.