Correlation Between Super Micro and Frequency Electronics

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

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

Diversification Opportunities for Super Micro and Frequency Electronics

-0.24

Correlation Coefficient

Super Micro  Frequency Electronics

Very good diversification

The 3 months correlation between Super and Frequency is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Super Micro Computer and Frequency Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Electronics and Super Micro 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 Super Micro Computer are associated (or correlated) with Frequency Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Electronics has no effect on the direction of Super Micro i.e., Super Micro and Frequency Electronics go up and down completely randomly.

Pair Corralation between Super Micro and Frequency Electronics

Given the investment horizon of 90 days Super Micro Computer is expected to under-perform the Frequency Electronics. In addition to that, Super Micro is 2.29 times more volatile than Frequency Electronics. It trades about -0.01 of its total potential returns per unit of risk. Frequency Electronics is currently generating about 0.19 per unit of volatility. If you would invest  1,194  in Frequency Electronics on September 24, 2024 and sell it today you would earn a total of  708.00  from holding Frequency Electronics or generate 59.3% return on investment over 90 days.

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

Super Micro Computer  vs.  Frequency Electronics

Super Micro Computer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Super Micro Computer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

Frequency Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Super Micro and Frequency Electronics

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

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