Correlation Between Wafer Works and GlobalWafers

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

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

Diversification Opportunities for Wafer Works and GlobalWafers

0.71

Correlation Coefficient

Wafer Works  GlobalWafers

Poor diversification

The 3 months correlation between Wafer and GlobalWafers is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Wafer Works and GlobalWafers Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlobalWafers and Wafer Works 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 Wafer Works are associated (or correlated) with GlobalWafers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlobalWafers has no effect on the direction of Wafer Works i.e., Wafer Works and GlobalWafers go up and down completely randomly.

Pair Corralation between Wafer Works and GlobalWafers

Assuming the 90 days trading horizon Wafer Works is expected to generate 1.07 times more return on investment than GlobalWafers. However, Wafer Works is 1.07 times more volatile than GlobalWafers Co. It trades about -0.05 of its potential returns per unit of risk. GlobalWafers Co is currently generating about -0.07 per unit of risk. If you would invest  3,095  in Wafer Works on September 11, 2024 and sell it today you would lose (190.00) from holding Wafer Works or give up 6.14% of portfolio value over 90 days.

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

Wafer Works  vs.  GlobalWafers Co

Wafer Works

Risk-Adjusted Performance

0 of 100

Very Weak

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

GlobalWafers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalWafers Co 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 Wafer Works and GlobalWafers

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

The idea behind Wafer Works and GlobalWafers 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.