Correlation Between Solitron Devices and Micropac Industries

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

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

Diversification Opportunities for Solitron Devices and Micropac Industries

-0.65

Correlation Coefficient

Solitron Devices  Micropac Industries

Excellent diversification

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

Pair Corralation between Solitron Devices and Micropac Industries

Given the investment horizon of 90 days Solitron Devices is expected to under-perform the Micropac Industries. In addition to that, Solitron Devices is 15.88 times more volatile than Micropac Industries. It trades about -0.18 of its total potential returns per unit of risk. Micropac Industries is currently generating about 0.41 per unit of volatility. If you would invest  1,985  in Micropac Industries on October 6, 2024 and sell it today you would earn a total of  12.00  from holding Micropac Industries or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

Solitron Devices  vs.  Micropac Industries

Solitron Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solitron Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Micropac Industries

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micropac Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Micropac Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solitron Devices and Micropac Industries

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

The idea behind Solitron Devices and Micropac Industries 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.