Correlation Between Strategic Education and Richardson Electronics

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

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

Diversification Opportunities for Strategic Education and Richardson Electronics

0.76

Correlation Coefficient

Strategic Education  Richardson Electronics

Poor diversification

The 3 months correlation between Strategic and Richardson is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Education and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and Strategic Education 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 Strategic Education are associated (or correlated) with Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of Strategic Education i.e., Strategic Education and Richardson Electronics go up and down completely randomly.

Pair Corralation between Strategic Education and Richardson Electronics

Assuming the 90 days horizon Strategic Education is expected to generate 0.67 times more return on investment than Richardson Electronics. However, Strategic Education is 1.5 times less risky than Richardson Electronics. It trades about -0.1 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.08 per unit of risk. If you would invest  9,389  in Strategic Education on September 24, 2024 and sell it today you would lose (289.00) from holding Strategic Education or give up 3.08% of portfolio value over 90 days.

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

Strategic Education  vs.  Richardson Electronics

Strategic Education

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Education are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Strategic Education may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Richardson Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Richardson Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Education and Richardson Electronics

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

The idea behind Strategic Education and Richardson 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.