Correlation Between Iteris and Frequency Electronics

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

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

Diversification Opportunities for Iteris and Frequency Electronics

0.83

Correlation Coefficient

Iteris  Frequency Electronics

Very poor diversification

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

Pair Corralation between Iteris and Frequency Electronics

Considering the 90-day investment horizon Iteris Inc is expected to generate 39.86 times more return on investment than Frequency Electronics. However, Iteris is 39.86 times more volatile than Frequency Electronics. It trades about 0.17 of its potential returns per unit of risk. Frequency Electronics is currently generating about 0.18 per unit of risk. 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

Iteris Inc  vs.  Frequency Electronics

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.

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.

Pair Trading with Iteris and Frequency Electronics

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

The idea behind Iteris Inc and Frequency 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.