Correlation Between NASD Declining and Teradyne

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

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

Diversification Opportunities for NASD Declining and Teradyne

-0.08

Correlation Coefficient

NASD Declining  Teradyne

Good diversification

The 3 months correlation between NASD and Teradyne is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding NASD Declining Stocks and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne and NASD Declining 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 NASD Declining Stocks are associated (or correlated) with Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of NASD Declining i.e., NASD Declining and Teradyne go up and down completely randomly.

Pair Corralation between NASD Declining and Teradyne

Assuming the 90 days trading horizon NASD Declining Stocks is expected to generate 17.41 times more return on investment than Teradyne. However, NASD Declining is 17.41 times more volatile than Teradyne. It trades about 0.2 of its potential returns per unit of risk. Teradyne is currently generating about -0.01 per unit of risk. If you would invest  193,700  in NASD Declining Stocks on September 15, 2024 and sell it today you would earn a total of  90,300  from holding NASD Declining Stocks or generate 46.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

NASD Declining Stocks  vs.  Teradyne

Pair Trading with NASD Declining and Teradyne

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

The idea behind NASD Declining Stocks and Teradyne 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.