Correlation Between Test Research and WT Microelectronics

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

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

Diversification Opportunities for Test Research and WT Microelectronics

-0.27

Correlation Coefficient

Test Research  WT Microelectronics

Very good diversification

The 3 months correlation between Test and 3036 is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Test Research and WT Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WT Microelectronics and Test Research 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 Test Research are associated (or correlated) with WT Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WT Microelectronics has no effect on the direction of Test Research i.e., Test Research and WT Microelectronics go up and down completely randomly.

Pair Corralation between Test Research and WT Microelectronics

Assuming the 90 days trading horizon Test Research is expected to generate 0.87 times more return on investment than WT Microelectronics. However, Test Research is 1.15 times less risky than WT Microelectronics. It trades about 0.07 of its potential returns per unit of risk. WT Microelectronics Co is currently generating about 0.06 per unit of risk. If you would invest  6,370  in Test Research on September 13, 2024 and sell it today you would earn a total of  6,080  from holding Test Research or generate 95.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Test Research  vs.  WT Microelectronics Co

Test Research

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Test Research has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

WT Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Test Research and WT Microelectronics

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

The idea behind Test Research and WT Microelectronics Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.