Correlation Between Globalfoundries and Photronics

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

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

Diversification Opportunities for Globalfoundries and Photronics

0.7

Correlation Coefficient

Globalfoundries  Photronics

Poor diversification

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

Pair Corralation between Globalfoundries and Photronics

Considering the 90-day investment horizon Globalfoundries is expected to under-perform the Photronics. In addition to that, Globalfoundries is 1.55 times more volatile than Photronics. It trades about -0.07 of its total potential returns per unit of risk. Photronics is currently generating about -0.1 per unit of volatility. If you would invest  2,427  in Photronics on December 26, 2024 and sell it today you would lose (271.00) from holding Photronics or give up 11.17% of portfolio value over 90 days.

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

Globalfoundries  vs.  Photronics

Globalfoundries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Globalfoundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Photronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Photronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Globalfoundries and Photronics

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

The idea behind Globalfoundries and Photronics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.