Correlation Between Renesas Electronics and Diodes Incorporated

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

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

Diversification Opportunities for Renesas Electronics and Diodes Incorporated

0.21

Correlation Coefficient

Renesas Electronics  Diodes Incorporated

Modest diversification

The 3 months correlation between Renesas and Diodes is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics Corp and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated and Renesas 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 Renesas Electronics Corp are associated (or correlated) with Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Diodes Incorporated go up and down completely randomly.

Pair Corralation between Renesas Electronics and Diodes Incorporated

Assuming the 90 days horizon Renesas Electronics Corp is expected to under-perform the Diodes Incorporated. But the pink sheet apears to be less risky and, when comparing its historical volatility, Renesas Electronics Corp is 1.57 times less risky than Diodes Incorporated. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Diodes Incorporated is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,415  in Diodes Incorporated on October 7, 2024 and sell it today you would lose (58.00) from holding Diodes Incorporated or give up 0.9% of portfolio value over 90 days.

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

Renesas Electronics Corp  vs.  Diodes Incorporated

Renesas Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Diodes Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Renesas Electronics and Diodes Incorporated

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

The idea behind Renesas Electronics Corp and Diodes Incorporated 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.