Correlation Between HE Equipment and Analog Devices

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

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

Diversification Opportunities for HE Equipment and Analog Devices

-0.45

Correlation Coefficient

HE Equipment  Analog Devices

Very good diversification

The 3 months correlation between HEES and Analog is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and HE Equipment 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 HE Equipment Services are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of HE Equipment i.e., HE Equipment and Analog Devices go up and down completely randomly.

Pair Corralation between HE Equipment and Analog Devices

Given the investment horizon of 90 days HE Equipment Services is expected to under-perform the Analog Devices. In addition to that, HE Equipment is 1.33 times more volatile than Analog Devices. It trades about -0.38 of its total potential returns per unit of risk. Analog Devices is currently generating about -0.02 per unit of volatility. If you would invest  21,369  in Analog Devices on September 23, 2024 and sell it today you would lose (191.00) from holding Analog Devices or give up 0.89% of portfolio value over 90 days.

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

HE Equipment Services  vs.  Analog Devices

HE Equipment Services

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, HE Equipment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with HE Equipment and Analog Devices

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

The idea behind HE Equipment Services and Analog Devices 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.