Correlation Between Richardson Electronics and Micropac Industries

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

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

Diversification Opportunities for Richardson Electronics and Micropac Industries

0.79

Correlation Coefficient

Richardson Electronics  Micropac Industries

Poor diversification

The 3 months correlation between Richardson and Micropac is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Micropac Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micropac Industries 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 Micropac Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micropac Industries has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Micropac Industries go up and down completely randomly.

Pair Corralation between Richardson Electronics and Micropac Industries

Given the investment horizon of 90 days Richardson Electronics is expected to generate 2.51 times less return on investment than Micropac Industries. But when comparing it to its historical volatility, Richardson Electronics is 1.55 times less risky than Micropac Industries. It trades about 0.11 of its potential returns per unit of risk. Micropac Industries is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,400  in Micropac Industries on October 1, 2024 and sell it today you would earn a total of  595.00  from holding Micropac Industries or generate 42.5% return on investment over 90 days.

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

Richardson Electronics  vs.  Micropac Industries

Richardson Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Richardson Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Micropac Industries

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micropac Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Micropac Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Richardson Electronics and Micropac Industries

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

The idea behind Richardson Electronics and Micropac 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.