Correlation Between Deswell Industries and Desktop Metal

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

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

Diversification Opportunities for Deswell Industries and Desktop Metal

0.09

Correlation Coefficient

Deswell Industries  Desktop Metal

Significant diversification

The 3 months correlation between Deswell and Desktop is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and Desktop Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desktop Metal and Deswell Industries 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 Deswell Industries are associated (or correlated) with Desktop Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desktop Metal has no effect on the direction of Deswell Industries i.e., Deswell Industries and Desktop Metal go up and down completely randomly.

Pair Corralation between Deswell Industries and Desktop Metal

Given the investment horizon of 90 days Deswell Industries is expected to generate 0.68 times more return on investment than Desktop Metal. However, Deswell Industries is 1.46 times less risky than Desktop Metal. It trades about 0.11 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.02 per unit of risk. If you would invest  238.00  in Deswell Industries on September 5, 2024 and sell it today you would earn a total of  32.00  from holding Deswell Industries or generate 13.45% return on investment over 90 days.

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

Deswell Industries  vs.  Desktop Metal

Deswell Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Deswell Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Desktop Metal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Deswell Industries and Desktop Metal

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

The idea behind Deswell Industries and Desktop Metal 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..