Correlation Between Exponent and Virco Manufacturing

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

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

Diversification Opportunities for Exponent and Virco Manufacturing

0.64

Correlation Coefficient

Exponent  Virco Manufacturing

Poor diversification

The 3 months correlation between Exponent and Virco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Exponent and Virco Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virco Manufacturing and Exponent 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 Exponent are associated (or correlated) with Virco Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virco Manufacturing has no effect on the direction of Exponent i.e., Exponent and Virco Manufacturing go up and down completely randomly.

Pair Corralation between Exponent and Virco Manufacturing

Given the investment horizon of 90 days Exponent is expected to under-perform the Virco Manufacturing. But the stock apears to be less risky and, when comparing its historical volatility, Exponent is 2.11 times less risky than Virco Manufacturing. The stock trades about -0.09 of its potential returns per unit of risk. The Virco Manufacturing is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,018  in Virco Manufacturing on December 29, 2024 and sell it today you would lose (65.00) from holding Virco Manufacturing or give up 6.39% of portfolio value over 90 days.

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

Exponent  vs.  Virco Manufacturing

Exponent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exponent has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Virco Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virco Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Virco Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Exponent and Virco Manufacturing

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

The idea behind Exponent and Virco Manufacturing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.