Correlation Between Renesas Electronics and Legend Holdings

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

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

Diversification Opportunities for Renesas Electronics and Legend Holdings

0.07

Correlation Coefficient

Renesas Electronics  Legend Holdings

Significant diversification

The 3 months correlation between Renesas and Legend is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and Legend Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Holdings and Renesas Electronics 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 Renesas Electronics are associated (or correlated) with Legend Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Holdings has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Legend Holdings go up and down completely randomly.

Pair Corralation between Renesas Electronics and Legend Holdings

Assuming the 90 days horizon Renesas Electronics is expected to under-perform the Legend Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Renesas Electronics is 1.27 times less risky than Legend Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Legend Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  93.00  in Legend Holdings on October 8, 2024 and sell it today you would lose (3.00) from holding Legend Holdings or give up 3.23% of portfolio value over 90 days.

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

Renesas Electronics  vs.  Legend Holdings

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Legend Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Renesas Electronics and Legend Holdings

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

The idea behind Renesas Electronics and Legend Holdings 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.