Correlation Between Advanced Ceramic and Leader Electronics

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

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

Diversification Opportunities for Advanced Ceramic and Leader Electronics

0.03

Correlation Coefficient

Advanced Ceramic  Leader Electronics

Significant diversification

The 3 months correlation between Advanced and Leader is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Ceramic X and Leader Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Electronics and Advanced Ceramic 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 Advanced Ceramic X are associated (or correlated) with Leader Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Electronics has no effect on the direction of Advanced Ceramic i.e., Advanced Ceramic and Leader Electronics go up and down completely randomly.

Pair Corralation between Advanced Ceramic and Leader Electronics

Assuming the 90 days trading horizon Advanced Ceramic X is expected to generate 1.45 times more return on investment than Leader Electronics. However, Advanced Ceramic is 1.45 times more volatile than Leader Electronics. It trades about 0.07 of its potential returns per unit of risk. Leader Electronics is currently generating about -0.1 per unit of risk. If you would invest  16,250  in Advanced Ceramic X on September 12, 2024 and sell it today you would earn a total of  1,550  from holding Advanced Ceramic X or generate 9.54% return on investment over 90 days.

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

Advanced Ceramic X  vs.  Leader Electronics

Advanced Ceramic X

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Ceramic X are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Ceramic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Leader Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leader Electronics 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 Advanced Ceramic and Leader Electronics

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

The idea behind Advanced Ceramic X and Leader Electronics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.