Correlation Between Richardson Electronics and Deswell Industries

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

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

Diversification Opportunities for Richardson Electronics and Deswell Industries

0.63

Correlation Coefficient

Richardson Electronics  Deswell Industries

Poor diversification

The 3 months correlation between Richardson and Deswell is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Deswell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deswell Industries 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 Deswell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deswell Industries has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Deswell Industries go up and down completely randomly.

Pair Corralation between Richardson Electronics and Deswell Industries

Given the investment horizon of 90 days Richardson Electronics is expected to generate 1.78 times more return on investment than Deswell Industries. However, Richardson Electronics is 1.78 times more volatile than Deswell Industries. It trades about -0.05 of its potential returns per unit of risk. Deswell Industries is currently generating about -0.1 per unit of risk. If you would invest  1,453  in Richardson Electronics on December 4, 2024 and sell it today you would lose (133.00) from holding Richardson Electronics or give up 9.15% of portfolio value over 90 days.

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

Richardson Electronics  vs.  Deswell Industries

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 latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Deswell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Richardson Electronics and Deswell Industries

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

The idea behind Richardson Electronics and Deswell Industries 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.