Correlation Between X-FAB Silicon and EuropaCorp

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

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

Diversification Opportunities for X-FAB Silicon and EuropaCorp

-0.15

Correlation Coefficient

X-FAB Silicon  EuropaCorp

Good diversification

The 3 months correlation between X-FAB and EuropaCorp is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and EuropaCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuropaCorp and X-FAB Silicon 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 X FAB Silicon Foundries are associated (or correlated) with EuropaCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuropaCorp has no effect on the direction of X-FAB Silicon i.e., X-FAB Silicon and EuropaCorp go up and down completely randomly.

Pair Corralation between X-FAB Silicon and EuropaCorp

Assuming the 90 days trading horizon X-FAB Silicon is expected to generate 42.09 times less return on investment than EuropaCorp. But when comparing it to its historical volatility, X FAB Silicon Foundries is 2.35 times less risky than EuropaCorp. It trades about 0.01 of its potential returns per unit of risk. EuropaCorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  40.00  in EuropaCorp on December 11, 2024 and sell it today you would earn a total of  4.00  from holding EuropaCorp or generate 10.0% return on investment over 90 days.

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

X FAB Silicon Foundries  vs.  EuropaCorp

X FAB Silicon

Risk-Adjusted Performance

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 comparatively stable basic indicators, X-FAB Silicon is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

EuropaCorp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EuropaCorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, EuropaCorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with X-FAB Silicon and EuropaCorp

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

The idea behind X FAB Silicon Foundries and EuropaCorp 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.