Correlation Between Renesas Electronics and Power Integrations

Can any of the company-specific risk be diversified away by investing in both Renesas Electronics and Power Integrations 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 Power Integrations 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 Power Integrations, you can compare the effects of market volatilities on Renesas Electronics and Power Integrations 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 Power Integrations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renesas Electronics and Power Integrations.

Diversification Opportunities for Renesas Electronics and Power Integrations

-0.03

Correlation Coefficient

Renesas Electronics  Power Integrations

Good diversification

The 3 months correlation between Renesas and Power is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics Corp and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations 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 Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Power Integrations go up and down completely randomly.

Pair Corralation between Renesas Electronics and Power Integrations

Assuming the 90 days horizon Renesas Electronics Corp is expected to generate 1.2 times more return on investment than Power Integrations. However, Renesas Electronics is 1.2 times more volatile than Power Integrations. It trades about -0.01 of its potential returns per unit of risk. Power Integrations is currently generating about -0.02 per unit of risk. If you would invest  796.00  in Renesas Electronics Corp on October 4, 2024 and sell it today you would lose (162.00) from holding Renesas Electronics Corp or give up 20.35% of portfolio value over 90 days.

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

Renesas Electronics Corp  vs.  Power Integrations

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 weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Power Integrations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Integrations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Power Integrations is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Renesas Electronics and Power Integrations

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

The idea behind Renesas Electronics Corp and Power Integrations 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.