Correlation Between Edimax Technology and Action Electronics

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

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

Diversification Opportunities for Edimax Technology and Action Electronics

0.39

Correlation Coefficient

Edimax Technology  Action Electronics

Weak diversification

The 3 months correlation between Edimax and Action is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Edimax Technology Co and Action Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action Electronics and Edimax Technology 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 Edimax Technology Co are associated (or correlated) with Action Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Electronics has no effect on the direction of Edimax Technology i.e., Edimax Technology and Action Electronics go up and down completely randomly.

Pair Corralation between Edimax Technology and Action Electronics

Assuming the 90 days trading horizon Edimax Technology Co is expected to generate 1.36 times more return on investment than Action Electronics. However, Edimax Technology is 1.36 times more volatile than Action Electronics Co. It trades about 0.06 of its potential returns per unit of risk. Action Electronics Co is currently generating about 0.05 per unit of risk. If you would invest  1,680  in Edimax Technology Co on September 3, 2024 and sell it today you would earn a total of  1,570  from holding Edimax Technology Co or generate 93.45% return on investment over 90 days.

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

Edimax Technology Co  vs.  Action Electronics Co

Edimax Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edimax Technology Co 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.

Action Electronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Electronics Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Action Electronics 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 Edimax Technology and Action Electronics

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

The idea behind Edimax Technology Co and Action Electronics 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.