Correlation Between Plexus Corp and Richardson Electronics

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

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

Diversification Opportunities for Plexus Corp and Richardson Electronics

0.91

Correlation Coefficient

Plexus Corp  Richardson Electronics

Almost no diversification

The 3 months correlation between Plexus and Richardson is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Plexus Corp and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and Plexus Corp 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 Plexus Corp 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 Plexus Corp i.e., Plexus Corp and Richardson Electronics go up and down completely randomly.

Pair Corralation between Plexus Corp and Richardson Electronics

Given the investment horizon of 90 days Plexus Corp is expected to generate 1.1 times more return on investment than Richardson Electronics. However, Plexus Corp is 1.1 times more volatile than Richardson Electronics. It trades about 0.19 of its potential returns per unit of risk. Richardson Electronics is currently generating about 0.16 per unit of risk. If you would invest  12,811  in Plexus Corp on August 30, 2024 and sell it today you would earn a total of  3,422  from holding Plexus Corp or generate 26.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Plexus Corp  vs.  Richardson Electronics

Plexus Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plexus Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Plexus Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Richardson Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Richardson Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plexus Corp and Richardson Electronics

The main advantage of trading using opposite Plexus Corp and Richardson Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plexus Corp 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 Plexus Corp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.