Correlation Between DOCDATA and Richardson Electronics

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

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

Diversification Opportunities for DOCDATA and Richardson Electronics

0.77

Correlation Coefficient

DOCDATA  Richardson Electronics

Poor diversification

The 3 months correlation between DOCDATA and Richardson is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding DOCDATA and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and DOCDATA 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 DOCDATA 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 DOCDATA i.e., DOCDATA and Richardson Electronics go up and down completely randomly.

Pair Corralation between DOCDATA and Richardson Electronics

Assuming the 90 days trading horizon DOCDATA is expected to under-perform the Richardson Electronics. In addition to that, DOCDATA is 1.01 times more volatile than Richardson Electronics. It trades about -0.12 of its total potential returns per unit of risk. Richardson Electronics is currently generating about -0.06 per unit of volatility. If you would invest  1,347  in Richardson Electronics on December 3, 2024 and sell it today you would lose (97.00) from holding Richardson Electronics or give up 7.2% of portfolio value over 90 days.

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

DOCDATA  vs.  Richardson Electronics

DOCDATA

Risk-Adjusted Performance

Very Weak

Over the last 90 days DOCDATA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Richardson Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richardson Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Richardson Electronics is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with DOCDATA and Richardson Electronics

The main advantage of trading using opposite DOCDATA and Richardson Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOCDATA 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 DOCDATA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.