Correlation Between Electro Sensors and Garmin

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

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

Diversification Opportunities for Electro Sensors and Garmin

0.74

Correlation Coefficient

Electro Sensors  Garmin

Poor diversification

The 3 months correlation between Electro and Garmin is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Electro Sensors and Garmin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garmin and Electro Sensors 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 Electro Sensors are associated (or correlated) with Garmin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garmin has no effect on the direction of Electro Sensors i.e., Electro Sensors and Garmin go up and down completely randomly.

Pair Corralation between Electro Sensors and Garmin

Given the investment horizon of 90 days Electro Sensors is expected to generate 2.22 times less return on investment than Garmin. But when comparing it to its historical volatility, Electro Sensors is 1.16 times less risky than Garmin. It trades about 0.06 of its potential returns per unit of risk. Garmin is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  12,390  in Garmin on September 15, 2024 and sell it today you would earn a total of  9,150  from holding Garmin or generate 73.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.73%
Values	Daily Returns

Electro Sensors  vs.  Garmin

Electro Sensors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Electro Sensors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Garmin

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garmin are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Garmin displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electro Sensors and Garmin

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

The idea behind Electro Sensors and Garmin 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.