Correlation Between EMCORE and Power Integrations

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

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

Diversification Opportunities for EMCORE and Power Integrations

0.47

Correlation Coefficient

EMCORE  Power Integrations

Very weak diversification

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

Pair Corralation between EMCORE and Power Integrations

Given the investment horizon of 90 days EMCORE is expected to generate 2.47 times more return on investment than Power Integrations. However, EMCORE is 2.47 times more volatile than Power Integrations. It trades about 0.15 of its potential returns per unit of risk. Power Integrations is currently generating about 0.02 per unit of risk. If you would invest  221.00  in EMCORE on August 31, 2024 and sell it today you would earn a total of  77.00  from holding EMCORE or generate 34.84% return on investment over 90 days.

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

EMCORE  vs.  Power Integrations

EMCORE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

Power Integrations

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Integrations are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Power Integrations is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with EMCORE and Power Integrations

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

The idea behind EMCORE and Power Integrations 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.