Correlation Between Information Technology and Wistron Information

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

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

Diversification Opportunities for Information Technology and Wistron Information

0.47

Correlation Coefficient

Information Technology  Wistron Information

Very weak diversification

The 3 months correlation between Information and Wistron is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Wistron Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wistron Information and Information Technology 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 Information Technology Total are associated (or correlated) with Wistron Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wistron Information has no effect on the direction of Information Technology i.e., Information Technology and Wistron Information go up and down completely randomly.

Pair Corralation between Information Technology and Wistron Information

Assuming the 90 days trading horizon Information Technology is expected to generate 1.75 times less return on investment than Wistron Information. In addition to that, Information Technology is 1.03 times more volatile than Wistron Information Technology. It trades about 0.08 of its total potential returns per unit of risk. Wistron Information Technology is currently generating about 0.14 per unit of volatility. If you would invest  11,300  in Wistron Information Technology on September 12, 2024 and sell it today you would earn a total of  2,200  from holding Wistron Information Technology or generate 19.47% return on investment over 90 days.

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

Information Technology Total  vs.  Wistron Information Technology

Information Technology

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wistron Information

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wistron Information Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wistron Information showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Information Technology and Wistron Information

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

The idea behind Information Technology Total and Wistron Information Technology 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.