Correlation Between Lantronix and Frequency Electronics

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

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

Diversification Opportunities for Lantronix and Frequency Electronics

-0.46

Correlation Coefficient

Lantronix  Frequency Electronics

Very good diversification

The 3 months correlation between Lantronix and Frequency is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lantronix and Frequency Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Electronics and Lantronix 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 Lantronix are associated (or correlated) with Frequency Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Electronics has no effect on the direction of Lantronix i.e., Lantronix and Frequency Electronics go up and down completely randomly.

Pair Corralation between Lantronix and Frequency Electronics

Given the investment horizon of 90 days Lantronix is expected to under-perform the Frequency Electronics. In addition to that, Lantronix is 2.84 times more volatile than Frequency Electronics. It trades about -0.02 of its total potential returns per unit of risk. Frequency Electronics is currently generating about 0.01 per unit of volatility. If you would invest  1,394  in Frequency Electronics on September 3, 2024 and sell it today you would earn a total of  7.00  from holding Frequency Electronics or generate 0.5% return on investment over 90 days.

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

Lantronix  vs.  Frequency Electronics

Lantronix

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lantronix has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Lantronix is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Frequency Electronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Frequency Electronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lantronix and Frequency Electronics

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

The idea behind Lantronix and Frequency 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.