Correlation Between Radiant Opto and Interactive Digital

Can any of the company-specific risk be diversified away by investing in both Radiant Opto and Interactive Digital 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 Radiant Opto and Interactive Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Radiant Opto and Interactive Digital

0.28

Correlation Coefficient

Radiant Opto  Interactive Digital

Modest diversification

The 3 months correlation between Radiant and Interactive is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Radiant Opto Electronics Corp and Interactive Digital Technologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interactive Digital and Radiant Opto 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 Radiant Opto Electronics Corp are associated (or correlated) with Interactive Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interactive Digital has no effect on the direction of Radiant Opto i.e., Radiant Opto and Interactive Digital go up and down completely randomly.

Pair Corralation between Radiant Opto and Interactive Digital

Assuming the 90 days trading horizon Radiant Opto Electronics Corp is expected to under-perform the Interactive Digital. In addition to that, Radiant Opto is 1.71 times more volatile than Interactive Digital Technologies. It trades about -0.03 of its total potential returns per unit of risk. Interactive Digital Technologies is currently generating about 0.02 per unit of volatility. If you would invest  8,450  in Interactive Digital Technologies on September 3, 2024 and sell it today you would earn a total of  80.00  from holding Interactive Digital Technologies or generate 0.95% return on investment over 90 days.

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

Radiant Opto Electronics Corp  vs.  Interactive Digital Technologi

Radiant Opto Electro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Interactive Digital

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Interactive Digital Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Interactive Digital 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 Radiant Opto and Interactive Digital

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

The idea behind Radiant Opto Electronics Corp and Interactive Digital Technologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.