Correlation Between Deswell Industries and VivoPower International

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

By analyzing existing cross correlation between Deswell Industries and VivoPower International PLC, you can compare the effects of market volatilities on Deswell Industries and VivoPower International 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 VivoPower International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deswell Industries and VivoPower International.

Diversification Opportunities for Deswell Industries and VivoPower International

0.04

Correlation Coefficient

Deswell Industries  VivoPower International

Significant diversification

The 3 months correlation between Deswell and VivoPower is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and VivoPower International PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VivoPower International 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 VivoPower International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VivoPower International has no effect on the direction of Deswell Industries i.e., Deswell Industries and VivoPower International go up and down completely randomly.

Pair Corralation between Deswell Industries and VivoPower International

Given the investment horizon of 90 days Deswell Industries is expected to under-perform the VivoPower International. But the stock apears to be less risky and, when comparing its historical volatility, Deswell Industries is 18.21 times less risky than VivoPower International. The stock trades about -0.08 of its potential returns per unit of risk. The VivoPower International PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  134.00  in VivoPower International PLC on December 30, 2024 and sell it today you would earn a total of  258.00  from holding VivoPower International PLC or generate 192.54% 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.  VivoPower International PLC

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.

VivoPower International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VivoPower International PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, VivoPower International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deswell Industries and VivoPower International

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

The idea behind Deswell Industries and VivoPower International PLC 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.