Correlation Between Richardson Electronics and SigmaTron International

Can any of the company-specific risk be diversified away by investing in both Richardson Electronics and SigmaTron 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 SigmaTron 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 SigmaTron International, you can compare the effects of market volatilities on Richardson Electronics and SigmaTron 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 SigmaTron International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Richardson Electronics and SigmaTron International.

Diversification Opportunities for Richardson Electronics and SigmaTron International

0.23

Correlation Coefficient

Richardson Electronics  SigmaTron International

Modest diversification

The 3 months correlation between Richardson and SigmaTron is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and SigmaTron International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SigmaTron 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 SigmaTron International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SigmaTron International has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and SigmaTron International go up and down completely randomly.

Pair Corralation between Richardson Electronics and SigmaTron International

Given the investment horizon of 90 days Richardson Electronics is expected to generate 0.65 times more return on investment than SigmaTron International. However, Richardson Electronics is 1.55 times less risky than SigmaTron International. It trades about 0.2 of its potential returns per unit of risk. SigmaTron International is currently generating about 0.03 per unit of risk. If you would invest  1,155  in Richardson Electronics on September 4, 2024 and sell it today you would earn a total of  305.00  from holding Richardson Electronics or generate 26.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Richardson Electronics  vs.  SigmaTron International

Richardson Electronics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 15 (%) 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.

SigmaTron International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SigmaTron International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, SigmaTron International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Richardson Electronics and SigmaTron International

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

The idea behind Richardson Electronics and SigmaTron 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.