Correlation Between SFA Semicon and SFA Engineering

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

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

Diversification Opportunities for SFA Semicon and SFA Engineering

0.66

Correlation Coefficient

SFA Semicon  SFA Engineering

Poor diversification

The 3 months correlation between SFA and SFA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding SFA Semicon Co and SFA Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFA Engineering and SFA Semicon 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 SFA Semicon Co are associated (or correlated) with SFA Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFA Engineering has no effect on the direction of SFA Semicon i.e., SFA Semicon and SFA Engineering go up and down completely randomly.

Pair Corralation between SFA Semicon and SFA Engineering

Assuming the 90 days trading horizon SFA Semicon Co is expected to generate 0.83 times more return on investment than SFA Engineering. However, SFA Semicon Co is 1.21 times less risky than SFA Engineering. It trades about -0.09 of its potential returns per unit of risk. SFA Engineering is currently generating about -0.13 per unit of risk. If you would invest  362,500  in SFA Semicon Co on September 13, 2024 and sell it today you would lose (50,000) from holding SFA Semicon Co or give up 13.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

SFA Semicon Co  vs.  SFA Engineering

SFA Semicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Semicon Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SFA Semicon and SFA Engineering

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

The idea behind SFA Semicon Co and SFA Engineering 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.