Correlation Between Richardson Electronics and Raytheon Technologies

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

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

Diversification Opportunities for Richardson Electronics and Raytheon Technologies

0.77

Correlation Coefficient

Richardson Electronics  Raytheon Technologies

Poor diversification

The 3 months correlation between Richardson and Raytheon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Raytheon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies and Richardson 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 Richardson Electronics are associated (or correlated) with Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Richardson Electronics and Raytheon Technologies

Assuming the 90 days horizon Richardson Electronics is expected to generate 1.85 times more return on investment than Raytheon Technologies. However, Richardson Electronics is 1.85 times more volatile than Raytheon Technologies Corp. It trades about 0.19 of its potential returns per unit of risk. Raytheon Technologies Corp is currently generating about 0.07 per unit of risk. If you would invest  1,026  in Richardson Electronics on September 5, 2024 and sell it today you would earn a total of  342.00  from holding Richardson Electronics or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Richardson Electronics  vs.  Raytheon Technologies Corp

Richardson Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Richardson Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Raytheon Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Richardson Electronics and Raytheon Technologies

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

The idea behind Richardson Electronics and Raytheon Technologies Corp 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.