Correlation Between Information Services and Renesas Electronics

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

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

Diversification Opportunities for Information Services and Renesas Electronics

0.75

Correlation Coefficient

Information Services  Renesas Electronics

Poor diversification

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

Pair Corralation between Information Services and Renesas Electronics

Assuming the 90 days horizon Information Services International Dentsu is expected to generate 0.82 times more return on investment than Renesas Electronics. However, Information Services International Dentsu is 1.22 times less risky than Renesas Electronics. It trades about 0.29 of its potential returns per unit of risk. Renesas Electronics is currently generating about 0.11 per unit of risk. If you would invest  2,960  in Information Services International Dentsu on September 5, 2024 and sell it today you would earn a total of  440.00  from holding Information Services International Dentsu or generate 14.86% return on investment over 90 days.

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

Information Services Internati  vs.  Renesas Electronics

Information Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Information Services International Dentsu has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Information Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Information Services and Renesas Electronics

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

The idea behind Information Services International Dentsu and Renesas Electronics 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.