Correlation Between Knowles Cor and Deswell Industries

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

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

Diversification Opportunities for Knowles Cor and Deswell Industries

0.37

Correlation Coefficient

Knowles Cor  Deswell Industries

Weak diversification

The 3 months correlation between Knowles and Deswell is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Knowles Cor and Deswell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deswell Industries and Knowles Cor 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 Knowles Cor are associated (or correlated) with Deswell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deswell Industries has no effect on the direction of Knowles Cor i.e., Knowles Cor and Deswell Industries go up and down completely randomly.

Pair Corralation between Knowles Cor and Deswell Industries

Allowing for the 90-day total investment horizon Knowles Cor is expected to generate 1.53 times less return on investment than Deswell Industries. But when comparing it to its historical volatility, Knowles Cor is 1.04 times less risky than Deswell Industries. It trades about 0.1 of its potential returns per unit of risk. Deswell Industries is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  228.00  in Deswell Industries on September 2, 2024 and sell it today you would earn a total of  44.00  from holding Deswell Industries or generate 19.3% return on investment over 90 days.

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

Knowles Cor  vs.  Deswell Industries

Knowles Cor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knowles Cor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Knowles Cor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deswell Industries

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Deswell Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Knowles Cor and Deswell Industries

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

The idea behind Knowles Cor and Deswell Industries 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.