Correlation Between Information Technology and Greatek Electronics

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

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

Diversification Opportunities for Information Technology and Greatek Electronics

0.48

Correlation Coefficient

Information Technology  Greatek Electronics

Very weak diversification

The 3 months correlation between Information and Greatek is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Greatek Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greatek Electronics and Information 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 Information Technology Total are associated (or correlated) with Greatek Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greatek Electronics has no effect on the direction of Information Technology i.e., Information Technology and Greatek Electronics go up and down completely randomly.

Pair Corralation between Information Technology and Greatek Electronics

Assuming the 90 days trading horizon Information Technology Total is expected to generate 2.59 times more return on investment than Greatek Electronics. However, Information Technology is 2.59 times more volatile than Greatek Electronics. It trades about 0.07 of its potential returns per unit of risk. Greatek Electronics is currently generating about 0.17 per unit of risk. If you would invest  4,590  in Information Technology Total on December 4, 2024 and sell it today you would earn a total of  440.00  from holding Information Technology Total or generate 9.59% return on investment over 90 days.

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

Information Technology Total  vs.  Greatek Electronics

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Greatek Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Greatek Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Greatek Electronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Information Technology and Greatek Electronics

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

The idea behind Information Technology Total and Greatek Electronics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.