Correlation Between TE Connectivity and Littelfuse

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

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

Diversification Opportunities for TE Connectivity and Littelfuse

0.32

Correlation Coefficient

TE Connectivity  Littelfuse

Weak diversification

The 3 months correlation between TEL and Littelfuse is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding TE Connectivity and Littelfuse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Littelfuse 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 Littelfuse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Littelfuse has no effect on the direction of TE Connectivity i.e., TE Connectivity and Littelfuse go up and down completely randomly.

Pair Corralation between TE Connectivity and Littelfuse

Considering the 90-day investment horizon TE Connectivity is expected to generate 0.9 times more return on investment than Littelfuse. However, TE Connectivity is 1.12 times less risky than Littelfuse. It trades about 0.01 of its potential returns per unit of risk. Littelfuse is currently generating about -0.09 per unit of risk. If you would invest  14,227  in TE Connectivity on December 29, 2024 and sell it today you would lose (14.00) from holding TE Connectivity or give up 0.1% of portfolio value over 90 days.

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

TE Connectivity  vs.  Littelfuse

TE Connectivity

Risk-Adjusted Performance

Very Weak

Over the last 90 days TE Connectivity has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Littelfuse

Risk-Adjusted Performance

Very Weak

Over the last 90 days Littelfuse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with TE Connectivity and Littelfuse

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

The idea behind TE Connectivity and Littelfuse 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.