Correlation Between GlobalWafers and Leatec Fine

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

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

Diversification Opportunities for GlobalWafers and Leatec Fine

-0.55

Correlation Coefficient

GlobalWafers  Leatec Fine

Excellent diversification

The 3 months correlation between GlobalWafers and Leatec is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding GlobalWafers Co and Leatec Fine Ceramics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leatec Fine Ceramics and GlobalWafers 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 GlobalWafers Co are associated (or correlated) with Leatec Fine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leatec Fine Ceramics has no effect on the direction of GlobalWafers i.e., GlobalWafers and Leatec Fine go up and down completely randomly.

Pair Corralation between GlobalWafers and Leatec Fine

Assuming the 90 days trading horizon GlobalWafers is expected to generate 4.61 times less return on investment than Leatec Fine. But when comparing it to its historical volatility, GlobalWafers Co is 1.04 times less risky than Leatec Fine. It trades about 0.02 of its potential returns per unit of risk. Leatec Fine Ceramics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,805  in Leatec Fine Ceramics on September 5, 2024 and sell it today you would earn a total of  75.00  from holding Leatec Fine Ceramics or generate 2.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.26%
Values	Daily Returns

GlobalWafers Co  vs.  Leatec Fine Ceramics

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.

Leatec Fine Ceramics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Leatec Fine Ceramics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Leatec Fine showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GlobalWafers and Leatec Fine

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

The idea behind GlobalWafers Co and Leatec Fine Ceramics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.