Correlation Between TE Connectivity and Flex

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

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

Diversification Opportunities for TE Connectivity and Flex

0.3

Correlation Coefficient

TE Connectivity  Flex

Weak diversification

The 3 months correlation between TEL and Flex is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding TE Connectivity and Flex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex and TE Connectivity 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 TE Connectivity are associated (or correlated) with Flex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex has no effect on the direction of TE Connectivity i.e., TE Connectivity and Flex go up and down completely randomly.

Pair Corralation between TE Connectivity and Flex

Considering the 90-day investment horizon TE Connectivity is expected to generate 5.67 times less return on investment than Flex. But when comparing it to its historical volatility, TE Connectivity is 2.96 times less risky than Flex. It trades about 0.04 of its potential returns per unit of risk. Flex is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Flex on November 29, 2024 and sell it today you would earn a total of  2,873  from holding Flex or generate 291.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

TE Connectivity  vs.  Flex

TE Connectivity

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TE Connectivity are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, TE Connectivity is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Flex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Flex is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TE Connectivity and Flex

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

The idea behind TE Connectivity and Flex 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.