Correlation Between Frequency Electronics and Palladyne

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

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

Diversification Opportunities for Frequency Electronics and Palladyne

0.7

Correlation Coefficient

Frequency Electronics  Palladyne

Poor diversification

The 3 months correlation between Frequency and Palladyne is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Frequency Electronics and Palladyne AI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palladyne AI Corp and Frequency Electronics 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 Frequency Electronics are associated (or correlated) with Palladyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palladyne AI Corp has no effect on the direction of Frequency Electronics i.e., Frequency Electronics and Palladyne go up and down completely randomly.

Pair Corralation between Frequency Electronics and Palladyne

Given the investment horizon of 90 days Frequency Electronics is expected to under-perform the Palladyne. But the stock apears to be less risky and, when comparing its historical volatility, Frequency Electronics is 9.87 times less risky than Palladyne. The stock trades about -0.25 of its potential returns per unit of risk. The Palladyne AI Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  359.00  in Palladyne AI Corp on October 23, 2024 and sell it today you would earn a total of  410.00  from holding Palladyne AI Corp or generate 114.21% return on investment over 90 days.

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

Frequency Electronics  vs.  Palladyne AI Corp

Frequency Electronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Palladyne AI Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Palladyne AI Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Palladyne displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frequency Electronics and Palladyne

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

The idea behind Frequency Electronics and Palladyne AI Corp 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.