Correlation Between Benchmark Electronics and EMCORE

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

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

Diversification Opportunities for Benchmark Electronics and EMCORE

0.61

Correlation Coefficient

Benchmark Electronics  EMCORE

Poor diversification

The 3 months correlation between Benchmark and EMCORE is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Benchmark Electronics and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE and Benchmark Electronics 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 Benchmark Electronics are associated (or correlated) with EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of Benchmark Electronics i.e., Benchmark Electronics and EMCORE go up and down completely randomly.

Pair Corralation between Benchmark Electronics and EMCORE

Considering the 90-day investment horizon Benchmark Electronics is expected to generate 0.31 times more return on investment than EMCORE. However, Benchmark Electronics is 3.22 times less risky than EMCORE. It trades about 0.1 of its potential returns per unit of risk. EMCORE is currently generating about 0.02 per unit of risk. If you would invest  2,637  in Benchmark Electronics on October 7, 2024 and sell it today you would earn a total of  1,981  from holding Benchmark Electronics or generate 75.12% return on investment over 90 days.

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

Benchmark Electronics  vs.  EMCORE

Benchmark Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Benchmark Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

EMCORE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Benchmark Electronics and EMCORE

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

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