Correlation Between Grand Canyon and Richardson Electronics

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

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

Diversification Opportunities for Grand Canyon and Richardson Electronics

-0.51

Correlation Coefficient

Grand Canyon  Richardson Electronics

Excellent diversification

The 3 months correlation between Grand and Richardson is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Grand Canyon Education and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and Grand Canyon 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 Grand Canyon Education are associated (or correlated) with Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of Grand Canyon i.e., Grand Canyon and Richardson Electronics go up and down completely randomly.

Pair Corralation between Grand Canyon and Richardson Electronics

Assuming the 90 days trading horizon Grand Canyon Education is expected to generate 0.62 times more return on investment than Richardson Electronics. However, Grand Canyon Education is 1.62 times less risky than Richardson Electronics. It trades about 0.12 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.04 per unit of risk. If you would invest  15,500  in Grand Canyon Education on November 29, 2024 and sell it today you would earn a total of  1,600  from holding Grand Canyon Education or generate 10.32% return on investment over 90 days.

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

Grand Canyon Education  vs.  Richardson Electronics

Grand Canyon Education

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Canyon Education are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Grand Canyon may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Richardson Electronics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Grand Canyon and Richardson Electronics

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

The idea behind Grand Canyon Education and Richardson Electronics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.