Correlation Between AXT and Photronics

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

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

Diversification Opportunities for AXT and Photronics

-0.29

Correlation Coefficient

AXT  Photronics

Very good diversification

The 3 months correlation between AXT and Photronics is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding AXT Inc and Photronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Photronics and AXT 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 AXT Inc are associated (or correlated) with Photronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Photronics has no effect on the direction of AXT i.e., AXT and Photronics go up and down completely randomly.

Pair Corralation between AXT and Photronics

Given the investment horizon of 90 days AXT Inc is expected to generate 1.03 times more return on investment than Photronics. However, AXT is 1.03 times more volatile than Photronics. It trades about 0.16 of its potential returns per unit of risk. Photronics is currently generating about 0.01 per unit of risk. If you would invest  205.00  in AXT Inc on October 6, 2024 and sell it today you would earn a total of  22.00  from holding AXT Inc or generate 10.73% return on investment over 90 days.

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

AXT Inc  vs.  Photronics

AXT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AXT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, AXT is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Photronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Photronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Photronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AXT and Photronics

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

The idea behind AXT Inc and Photronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.