Correlation Between Richardson Electronics and Brown Forman

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

By analyzing existing cross correlation between Richardson Electronics and Brown Forman, you can compare the effects of market volatilities on Richardson Electronics and Brown Forman 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 Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Richardson Electronics and Brown Forman.

Diversification Opportunities for Richardson Electronics and Brown Forman

-0.44

Correlation Coefficient

Richardson Electronics  Brown Forman

Very good diversification

The 3 months correlation between Richardson and Brown is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Brown Forman go up and down completely randomly.

Pair Corralation between Richardson Electronics and Brown Forman

Assuming the 90 days horizon Richardson Electronics is expected to under-perform the Brown Forman. But the stock apears to be less risky and, when comparing its historical volatility, Richardson Electronics is 1.33 times less risky than Brown Forman. The stock trades about -0.03 of its potential returns per unit of risk. The Brown Forman is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,819  in Brown Forman on September 27, 2024 and sell it today you would earn a total of  41.00  from holding Brown Forman or generate 1.07% return on investment over 90 days.

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

Richardson Electronics  vs.  Brown Forman

Richardson Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 9 (%) 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.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Richardson Electronics and Brown Forman

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

The idea behind Richardson Electronics and Brown Forman 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.