Correlation Between Super Micro and Benchmark Electronics

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

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

Diversification Opportunities for Super Micro and Benchmark Electronics

-0.65

Correlation Coefficient

Super Micro  Benchmark Electronics

Excellent diversification

The 3 months correlation between Super and Benchmark is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Super Micro Computer and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics and Super Micro 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 Super Micro Computer are associated (or correlated) with Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of Super Micro i.e., Super Micro and Benchmark Electronics go up and down completely randomly.

Pair Corralation between Super Micro and Benchmark Electronics

Given the investment horizon of 90 days Super Micro Computer is expected to generate 11.84 times more return on investment than Benchmark Electronics. However, Super Micro is 11.84 times more volatile than Benchmark Electronics. It trades about 0.24 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.18 per unit of risk. If you would invest  2,154  in Super Micro Computer on September 17, 2024 and sell it today you would earn a total of  1,190  from holding Super Micro Computer or generate 55.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Super Micro Computer  vs.  Benchmark Electronics

Super Micro Computer

Risk-Adjusted Performance

0 of 100

Weak

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

Benchmark Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Benchmark Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Super Micro and Benchmark Electronics

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

The idea behind Super Micro Computer and Benchmark 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.