Correlation Between Richardson Electronics and Laureate Education

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

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

Diversification Opportunities for Richardson Electronics and Laureate Education

-0.41

Correlation Coefficient

Richardson Electronics  Laureate Education

Very good diversification

The 3 months correlation between Richardson and Laureate is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Laureate Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laureate Education and Richardson 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 Richardson Electronics are associated (or correlated) with Laureate Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laureate Education has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Laureate Education go up and down completely randomly.

Pair Corralation between Richardson Electronics and Laureate Education

Assuming the 90 days horizon Richardson Electronics is expected to under-perform the Laureate Education. In addition to that, Richardson Electronics is 1.51 times more volatile than Laureate Education. It trades about -0.04 of its total potential returns per unit of risk. Laureate Education is currently generating about 0.03 per unit of volatility. If you would invest  1,780  in Laureate Education on November 29, 2024 and sell it today you would earn a total of  40.00  from holding Laureate Education or generate 2.25% return on investment over 90 days.

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

Richardson Electronics  vs.  Laureate Education

Richardson Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richardson Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Laureate Education

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Laureate Education are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Laureate Education is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Richardson Electronics and Laureate Education

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

The idea behind Richardson Electronics and Laureate Education 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.

Check out your portfolio center.

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.