Correlation Between Walton Advanced and Darfon Electronics

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

By analyzing existing cross correlation between Walton Advanced Engineering and Darfon Electronics Corp, you can compare the effects of market volatilities on Walton Advanced and Darfon Electronics 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 Walton Advanced with a short position of Darfon Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walton Advanced and Darfon Electronics.

Diversification Opportunities for Walton Advanced and Darfon Electronics

0.75

Correlation Coefficient

Walton Advanced  Darfon Electronics

Poor diversification

The 3 months correlation between Walton and Darfon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Walton Advanced Engineering and Darfon Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darfon Electronics Corp and Walton Advanced 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 Walton Advanced Engineering are associated (or correlated) with Darfon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darfon Electronics Corp has no effect on the direction of Walton Advanced i.e., Walton Advanced and Darfon Electronics go up and down completely randomly.

Pair Corralation between Walton Advanced and Darfon Electronics

Assuming the 90 days trading horizon Walton Advanced Engineering is expected to under-perform the Darfon Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Walton Advanced Engineering is 1.57 times less risky than Darfon Electronics. The stock trades about -0.32 of its potential returns per unit of risk. The Darfon Electronics Corp is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  5,030  in Darfon Electronics Corp on September 22, 2024 and sell it today you would lose (745.00) from holding Darfon Electronics Corp or give up 14.81% of portfolio value over 90 days.

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

Walton Advanced Engineering  vs.  Darfon Electronics Corp

Walton Advanced Engi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walton Advanced Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Darfon Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darfon Electronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Walton Advanced and Darfon Electronics

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

The idea behind Walton Advanced Engineering and Darfon Electronics Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.