Correlation Between Frequency Electronics and Iteris

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

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

Diversification Opportunities for Frequency Electronics and Iteris

0.83

Correlation Coefficient

Frequency Electronics  Iteris

Very poor diversification

The 3 months correlation between Frequency and Iteris is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Frequency Electronics and Iteris Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iteris Inc and Frequency Electronics 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 Frequency Electronics are associated (or correlated) with Iteris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iteris Inc has no effect on the direction of Frequency Electronics i.e., Frequency Electronics and Iteris go up and down completely randomly.

Pair Corralation between Frequency Electronics and Iteris

Given the investment horizon of 90 days Frequency Electronics is expected to generate 37.61 times less return on investment than Iteris. But when comparing it to its historical volatility, Frequency Electronics is 39.86 times less risky than Iteris. It trades about 0.18 of its potential returns per unit of risk. Iteris Inc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  715.00  in Iteris Inc on September 21, 2024 and sell it today you would earn a total of  25,934  from holding Iteris Inc or generate 3627.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	55.56%
Values	Daily Returns

Frequency Electronics  vs.  Iteris Inc

Frequency Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Iteris Inc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Iteris Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady basic indicators, Iteris demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frequency Electronics and Iteris

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

The idea behind Frequency Electronics and Iteris Inc 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.