Correlation Between Target and X FAB

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

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

Diversification Opportunities for Target and X FAB

-0.07

Correlation Coefficient

Target  X FAB

Good diversification

The 3 months correlation between Target and XFB is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Target and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Target 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 Target are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Target i.e., Target and X FAB go up and down completely randomly.

Pair Corralation between Target and X FAB

Assuming the 90 days horizon Target is expected to generate 2.19 times less return on investment than X FAB. But when comparing it to its historical volatility, Target is 1.26 times less risky than X FAB. It trades about 0.07 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  494.00  in X FAB Silicon Foundries on October 25, 2024 and sell it today you would earn a total of  22.00  from holding X FAB Silicon Foundries or generate 4.45% return on investment over 90 days.

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

Target  vs.  X FAB Silicon Foundries

Target

Risk-Adjusted Performance

0 of 100

Very Weak

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

X FAB Silicon

Risk-Adjusted Performance

6 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, X FAB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Target and X FAB

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

The idea behind Target and X FAB Silicon Foundries 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.