Correlation Between Eastern Air and StarPower Semiconductor

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

By analyzing existing cross correlation between Eastern Air Logistics and StarPower Semiconductor, you can compare the effects of market volatilities on Eastern Air and StarPower Semiconductor 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 Eastern Air with a short position of StarPower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Air and StarPower Semiconductor.

Diversification Opportunities for Eastern Air and StarPower Semiconductor

0.66

Correlation Coefficient

Eastern Air  StarPower Semiconductor

Poor diversification

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

Pair Corralation between Eastern Air and StarPower Semiconductor

Assuming the 90 days trading horizon Eastern Air is expected to generate 5.54 times less return on investment than StarPower Semiconductor. But when comparing it to its historical volatility, Eastern Air Logistics is 1.64 times less risky than StarPower Semiconductor. It trades about 0.05 of its potential returns per unit of risk. StarPower Semiconductor is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,903  in StarPower Semiconductor on September 13, 2024 and sell it today you would earn a total of  2,926  from holding StarPower Semiconductor or generate 42.39% return on investment over 90 days.

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

Eastern Air Logistics  vs.  StarPower Semiconductor

Eastern Air Logistics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Air Logistics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

StarPower Semiconductor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in StarPower Semiconductor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, StarPower Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern Air and StarPower Semiconductor

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

The idea behind Eastern Air Logistics and StarPower Semiconductor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.