Correlation Between Deswell Industries and CTS

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

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

Diversification Opportunities for Deswell Industries and CTS

0.4

Correlation Coefficient

Deswell Industries  CTS

Very weak diversification

The 3 months correlation between Deswell and CTS is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and CTS Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTS Corporation and Deswell 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 Deswell Industries are associated (or correlated) with CTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTS Corporation has no effect on the direction of Deswell Industries i.e., Deswell Industries and CTS go up and down completely randomly.

Pair Corralation between Deswell Industries and CTS

Given the investment horizon of 90 days Deswell Industries is expected to generate 0.92 times more return on investment than CTS. However, Deswell Industries is 1.08 times less risky than CTS. It trades about 0.13 of its potential returns per unit of risk. CTS Corporation is currently generating about 0.12 per unit of risk. If you would invest  228.00  in Deswell Industries on August 31, 2024 and sell it today you would earn a total of  39.00  from holding Deswell Industries or generate 17.11% return on investment over 90 days.

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

Deswell Industries  vs.  CTS Corp.

Deswell Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Deswell Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

CTS Corporation

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Deswell Industries and CTS

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

The idea behind Deswell Industries and CTS Corporation 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.