Correlation Between NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR

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

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

Diversification Opportunities for NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR

-0.51

Correlation Coefficient

NORTHEAST UTILITIES  ELMOS SEMICONDUCTOR

Excellent diversification

The 3 months correlation between NORTHEAST and ELMOS is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELMOS SEMICONDUCTOR and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES are associated (or correlated) with ELMOS SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELMOS SEMICONDUCTOR has no effect on the direction of NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to generate 0.39 times more return on investment than ELMOS SEMICONDUCTOR. However, NORTHEAST UTILITIES is 2.54 times less risky than ELMOS SEMICONDUCTOR. It trades about 0.05 of its potential returns per unit of risk. ELMOS SEMICONDUCTOR is currently generating about -0.02 per unit of risk. If you would invest  5,121  in NORTHEAST UTILITIES on September 29, 2024 and sell it today you would earn a total of  379.00  from holding NORTHEAST UTILITIES or generate 7.4% return on investment over 90 days.

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

NORTHEAST UTILITIES  vs.  ELMOS SEMICONDUCTOR

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ELMOS SEMICONDUCTOR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ELMOS SEMICONDUCTOR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ELMOS SEMICONDUCTOR is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR

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

The idea behind NORTHEAST UTILITIES and ELMOS SEMICONDUCTOR 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.