Correlation Between WGHT WTCHER and X FAB

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

By analyzing existing cross correlation between WGHT WTCHER INTL and X FAB Silicon Foundries, you can compare the effects of market volatilities on WGHT WTCHER and X FAB 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 WGHT WTCHER with a short position of X FAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of WGHT WTCHER and X FAB.

Diversification Opportunities for WGHT WTCHER and X FAB

0.24

Correlation Coefficient

WGHT WTCHER  X FAB

Modest diversification

The 3 months correlation between WGHT and XFB is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding WGHT WTCHER INTL and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and WGHT WTCHER 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 WGHT WTCHER INTL are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of WGHT WTCHER i.e., WGHT WTCHER and X FAB go up and down completely randomly.

Pair Corralation between WGHT WTCHER and X FAB

Assuming the 90 days trading horizon WGHT WTCHER INTL is expected to generate 3.42 times more return on investment than X FAB. However, WGHT WTCHER is 3.42 times more volatile than X FAB Silicon Foundries. It trades about 0.01 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.04 per unit of risk. If you would invest  413.00  in WGHT WTCHER INTL on October 5, 2024 and sell it today you would lose (289.00) from holding WGHT WTCHER INTL or give up 69.98% of portfolio value over 90 days.

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

WGHT WTCHER INTL  vs.  X FAB Silicon Foundries

WGHT WTCHER INTL

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days WGHT WTCHER INTL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, WGHT WTCHER unveiled solid returns over the last few months and may actually be approaching a breakup point.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WGHT WTCHER and X FAB

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

The idea behind WGHT WTCHER INTL and X FAB Silicon Foundries 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.