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

0.31

Correlation Coefficient

Deswell Industries  Richardson Electronics

Weak diversification

The 3 months correlation between Deswell and Richardson is 0.31. 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 generate 0.52 times more return on investment than Richardson Electronics. However, Deswell Industries is 1.91 times less risky than Richardson Electronics. It trades about -0.08 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.14 per unit of risk. If you would invest  248.00  in Deswell Industries on December 29, 2024 and sell it today you would lose (16.00) from holding Deswell Industries or give up 6.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
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 quite persistent basic indicators, Deswell Industries is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the 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 weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.