Correlation Between Motech Industries and GlobalWafers

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

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

Diversification Opportunities for Motech Industries and GlobalWafers

0.43

Correlation Coefficient

Motech Industries  GlobalWafers

Very weak diversification

The 3 months correlation between Motech and GlobalWafers is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Motech Industries Co and GlobalWafers Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlobalWafers and Motech Industries 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 Motech Industries Co 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 Motech Industries i.e., Motech Industries and GlobalWafers go up and down completely randomly.

Pair Corralation between Motech Industries and GlobalWafers

Assuming the 90 days trading horizon Motech Industries Co is expected to generate 1.29 times more return on investment than GlobalWafers. However, Motech Industries is 1.29 times more volatile than GlobalWafers Co. It trades about -0.01 of its potential returns per unit of risk. GlobalWafers Co is currently generating about -0.07 per unit of risk. If you would invest  2,787  in Motech Industries Co on September 9, 2024 and sell it today you would lose (292.00) from holding Motech Industries Co or give up 10.48% of portfolio value over 90 days.

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

Motech Industries Co  vs.  GlobalWafers Co

Motech Industries

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Motech Industries Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Motech Industries 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 fairly stable basic indicators, GlobalWafers 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 Motech Industries and GlobalWafers

The main advantage of trading using opposite Motech Industries and GlobalWafers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Motech Industries 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 Motech Industries Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .