Correlation Between Greatek Electronics and Faraday Technology

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

By analyzing existing cross correlation between Greatek Electronics and Faraday Technology Corp, you can compare the effects of market volatilities on Greatek Electronics and Faraday Technology 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 Greatek Electronics with a short position of Faraday Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Greatek Electronics and Faraday Technology.

Diversification Opportunities for Greatek Electronics and Faraday Technology

0.7

Correlation Coefficient

Greatek Electronics  Faraday Technology

Poor diversification

The 3 months correlation between Greatek and Faraday is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Greatek Electronics and Faraday Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Technology Corp and Greatek Electronics 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 Greatek Electronics are associated (or correlated) with Faraday Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Technology Corp has no effect on the direction of Greatek Electronics i.e., Greatek Electronics and Faraday Technology go up and down completely randomly.

Pair Corralation between Greatek Electronics and Faraday Technology

Assuming the 90 days trading horizon Greatek Electronics is expected to generate 3.62 times less return on investment than Faraday Technology. But when comparing it to its historical volatility, Greatek Electronics is 2.58 times less risky than Faraday Technology. It trades about 0.03 of its potential returns per unit of risk. Faraday Technology Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  14,700  in Faraday Technology Corp on September 23, 2024 and sell it today you would earn a total of  8,400  from holding Faraday Technology Corp or generate 57.14% return on investment over 90 days.

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

Greatek Electronics  vs.  Faraday Technology Corp

Greatek Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Greatek Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Greatek Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Faraday Technology Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faraday Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Greatek Electronics and Faraday Technology

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

The idea behind Greatek Electronics and Faraday Technology Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.