Correlation Between Motech Industries and GlobalWafers

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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

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Motech and GlobalWafers is 0.49. 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 under-perform the GlobalWafers. But the stock apears to be less risky and, when comparing its historical volatility, Motech Industries Co is 1.12 times less risky than GlobalWafers. The stock trades about -0.06 of its potential returns per unit of risk. The GlobalWafers Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  41,800  in GlobalWafers Co on September 6, 2024 and sell it today you would earn a total of  600.00  from holding GlobalWafers Co or generate 1.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

Motech Industries Co  vs.  GlobalWafers Co

 Performance 
       Timeline  
Motech Industries 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
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

 
Weak
 
Strong
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.

Motech Industries and GlobalWafers Volatility Contrast

   Predicted Return Density   
       Returns  

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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