Correlation Between MaxLinear and Richardson Electronics

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

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

Diversification Opportunities for MaxLinear and Richardson Electronics

0.25

Correlation Coefficient

MaxLinear  Richardson Electronics

Modest diversification

The 3 months correlation between MaxLinear and Richardson is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding MaxLinear and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and MaxLinear 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 MaxLinear 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 MaxLinear i.e., MaxLinear and Richardson Electronics go up and down completely randomly.

Pair Corralation between MaxLinear and Richardson Electronics

Assuming the 90 days horizon MaxLinear is expected to generate 0.96 times more return on investment than Richardson Electronics. However, MaxLinear is 1.04 times less risky than Richardson Electronics. It trades about 0.31 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.03 per unit of risk. If you would invest  1,958  in MaxLinear on October 25, 2024 and sell it today you would earn a total of  369.00  from holding MaxLinear or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

MaxLinear  vs.  Richardson Electronics

MaxLinear

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MaxLinear are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MaxLinear reported solid returns over the last few months and may actually be approaching a breakup point.

Richardson Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 MaxLinear and Richardson Electronics

The main advantage of trading using opposite MaxLinear and Richardson Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MaxLinear 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 MaxLinear 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.