Correlation Between Richardson Electronics and Flex

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

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

Diversification Opportunities for Richardson Electronics and Flex

-0.45

Correlation Coefficient

Richardson Electronics  Flex

Very good diversification

The 3 months correlation between Richardson and Flex is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Flex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex 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 Flex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Flex go up and down completely randomly.

Pair Corralation between Richardson Electronics and Flex

Given the investment horizon of 90 days Richardson Electronics is expected to under-perform the Flex. In addition to that, Richardson Electronics is 1.01 times more volatile than Flex. It trades about -0.05 of its total potential returns per unit of risk. Flex is currently generating about -0.01 per unit of volatility. If you would invest  3,922  in Flex on December 1, 2024 and sell it today you would lose (133.00) from holding Flex or give up 3.39% of portfolio value over 90 days.

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

Richardson Electronics  vs.  Flex

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.

Flex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Flex is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Richardson Electronics and Flex

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

The idea behind Richardson Electronics and Flex 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.