Correlation Between Tokyo Electron and SCI Engineered

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

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

Diversification Opportunities for Tokyo Electron and SCI Engineered

0.72

Correlation Coefficient

Tokyo Electron  SCI Engineered

Poor diversification

The 3 months correlation between Tokyo and SCI is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron and SCI Engineered Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCI Engineered Materials and Tokyo Electron 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 Tokyo Electron are associated (or correlated) with SCI Engineered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCI Engineered Materials has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and SCI Engineered go up and down completely randomly.

Pair Corralation between Tokyo Electron and SCI Engineered

Assuming the 90 days horizon Tokyo Electron is expected to generate 1.3 times more return on investment than SCI Engineered. However, Tokyo Electron is 1.3 times more volatile than SCI Engineered Materials. It trades about 0.01 of its potential returns per unit of risk. SCI Engineered Materials is currently generating about -0.01 per unit of risk. If you would invest  14,829  in Tokyo Electron on December 27, 2024 and sell it today you would lose (178.00) from holding Tokyo Electron or give up 1.2% of portfolio value over 90 days.

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

Tokyo Electron  vs.  SCI Engineered Materials

Tokyo Electron

Risk-Adjusted Performance

Weak

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SCI Engineered Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCI Engineered Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, SCI Engineered is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tokyo Electron and SCI Engineered

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

The idea behind Tokyo Electron and SCI Engineered Materials 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.