Correlation Between Deswell Industries and Richardson Electronics

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

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

Diversification Opportunities for Deswell Industries and Richardson Electronics

0.63

Correlation Coefficient

Deswell Industries  Richardson Electronics

Poor diversification

The 3 months correlation between Deswell and Richardson is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 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 Deswell Industries i.e., Deswell Industries and Richardson Electronics go up and down completely randomly.

Pair Corralation between Deswell Industries and Richardson Electronics

Given the investment horizon of 90 days Deswell Industries is expected to under-perform the Richardson Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Deswell Industries is 1.78 times less risky than Richardson Electronics. The stock trades about -0.1 of its potential returns per unit of risk. The Richardson Electronics is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,453  in Richardson Electronics on December 4, 2024 and sell it today you would lose (133.00) from holding Richardson Electronics or give up 9.15% of portfolio value over 90 days.

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

Deswell Industries  vs.  Richardson Electronics

Deswell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Deswell Industries and Richardson Electronics

The main advantage of trading using opposite Deswell Industries and Richardson Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deswell Industries 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 Deswell Industries 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.