Correlation Between Ledtech Electronics and Darwin Precisions

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

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

Diversification Opportunities for Ledtech Electronics and Darwin Precisions

0.11

Correlation Coefficient

Ledtech Electronics  Darwin Precisions

Average diversification

The 3 months correlation between Ledtech and Darwin is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ledtech Electronics Corp and Darwin Precisions Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darwin Precisions Corp and Ledtech 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 Ledtech Electronics Corp are associated (or correlated) with Darwin Precisions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darwin Precisions Corp has no effect on the direction of Ledtech Electronics i.e., Ledtech Electronics and Darwin Precisions go up and down completely randomly.

Pair Corralation between Ledtech Electronics and Darwin Precisions

Assuming the 90 days trading horizon Ledtech Electronics Corp is expected to generate 2.36 times more return on investment than Darwin Precisions. However, Ledtech Electronics is 2.36 times more volatile than Darwin Precisions Corp. It trades about 0.02 of its potential returns per unit of risk. Darwin Precisions Corp is currently generating about -0.1 per unit of risk. If you would invest  1,390  in Ledtech Electronics Corp on September 28, 2024 and sell it today you would earn a total of  10.00  from holding Ledtech Electronics Corp or generate 0.72% return on investment over 90 days.

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

Ledtech Electronics Corp  vs.  Darwin Precisions Corp

Ledtech Electronics Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ledtech Electronics Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Ledtech Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Darwin Precisions Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darwin Precisions 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 Ledtech Electronics and Darwin Precisions

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

The idea behind Ledtech Electronics Corp and Darwin Precisions 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.