Correlation Between Richardson Electronics and Reading International

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

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

Diversification Opportunities for Richardson Electronics and Reading International

-0.65

Correlation Coefficient

Richardson Electronics  Reading International

Excellent diversification

The 3 months correlation between Richardson and Reading is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Reading International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reading International 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 Reading International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reading International has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Reading International go up and down completely randomly.

Pair Corralation between Richardson Electronics and Reading International

Given the investment horizon of 90 days Richardson Electronics is expected to generate 0.46 times more return on investment than Reading International. However, Richardson Electronics is 2.19 times less risky than Reading International. It trades about 0.16 of its potential returns per unit of risk. Reading International is currently generating about -0.03 per unit of risk. If you would invest  1,162  in Richardson Electronics on September 16, 2024 and sell it today you would earn a total of  254.00  from holding Richardson Electronics or generate 21.86% return on investment over 90 days.

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

Richardson Electronics  vs.  Reading International

Richardson Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 12 (%) 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.

Reading International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reading International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Richardson Electronics and Reading International

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

The idea behind Richardson Electronics and Reading International 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.