Correlation Between GlobalWafers and Information Technology

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

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

Diversification Opportunities for GlobalWafers and Information Technology

-0.68

Correlation Coefficient

GlobalWafers  Information Technology

Excellent diversification

The 3 months correlation between GlobalWafers and Information is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding GlobalWafers Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and GlobalWafers 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 GlobalWafers Co are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of GlobalWafers i.e., GlobalWafers and Information Technology go up and down completely randomly.

Pair Corralation between GlobalWafers and Information Technology

Assuming the 90 days trading horizon GlobalWafers Co is expected to under-perform the Information Technology. But the stock apears to be less risky and, when comparing its historical volatility, GlobalWafers Co is 1.47 times less risky than Information Technology. The stock trades about -0.11 of its potential returns per unit of risk. The Information Technology Total is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,340  in Information Technology Total on September 12, 2024 and sell it today you would earn a total of  430.00  from holding Information Technology Total or generate 9.91% return on investment over 90 days.

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

GlobalWafers Co  vs.  Information Technology Total

GlobalWafers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalWafers 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.

Information Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GlobalWafers and Information Technology

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

The idea behind GlobalWafers Co and Information Technology Total 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..