Correlation Between AIR PRODCHEMICALS and Richardson Electronics

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

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

Diversification Opportunities for AIR PRODCHEMICALS and Richardson Electronics

0.73

Correlation Coefficient

AIR PRODCHEMICALS  Richardson Electronics

Poor diversification

The 3 months correlation between AIR and Richardson is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding AIR PRODCHEMICALS and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and AIR PRODCHEMICALS 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 AIR PRODCHEMICALS are associated (or correlated) with Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of AIR PRODCHEMICALS i.e., AIR PRODCHEMICALS and Richardson Electronics go up and down completely randomly.

Pair Corralation between AIR PRODCHEMICALS and Richardson Electronics

Assuming the 90 days trading horizon AIR PRODCHEMICALS is expected to generate 1.28 times less return on investment than Richardson Electronics. But when comparing it to its historical volatility, AIR PRODCHEMICALS is 1.52 times less risky than Richardson Electronics. It trades about 0.1 of its potential returns per unit of risk. Richardson Electronics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,044  in Richardson Electronics on October 4, 2024 and sell it today you would earn a total of  264.00  from holding Richardson Electronics or generate 25.29% return on investment over 90 days.

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

AIR PRODCHEMICALS  vs.  Richardson Electronics

AIR PRODCHEMICALS

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIR PRODCHEMICALS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, AIR PRODCHEMICALS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Richardson Electronics

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with AIR PRODCHEMICALS and Richardson Electronics

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

The idea behind AIR PRODCHEMICALS and Richardson 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.

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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..