Correlation Between Richardson Electronics and Interlink Electronics

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

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

Diversification Opportunities for Richardson Electronics and Interlink Electronics

-0.57

Correlation Coefficient

Richardson Electronics  Interlink Electronics

Excellent diversification

The 3 months correlation between Richardson and Interlink is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Interlink Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interlink Electronics 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 Interlink Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interlink Electronics has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Interlink Electronics go up and down completely randomly.

Pair Corralation between Richardson Electronics and Interlink Electronics

Given the investment horizon of 90 days Richardson Electronics is expected to under-perform the Interlink Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Richardson Electronics is 3.58 times less risky than Interlink Electronics. The stock trades about -0.03 of its potential returns per unit of risk. The Interlink Electronics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  494.00  in Interlink Electronics on November 28, 2024 and sell it today you would earn a total of  181.00  from holding Interlink Electronics or generate 36.64% 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.  Interlink Electronics

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 quite persistent essential indicators, Richardson Electronics is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Interlink Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Interlink Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Interlink Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Richardson Electronics and Interlink Electronics

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

The idea behind Richardson Electronics and Interlink 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.