Correlation Between Sumco Corp and AXT

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

By analyzing existing cross correlation between Sumco Corp ADR and AXT Inc, you can compare the effects of market volatilities on Sumco Corp and AXT 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 Sumco Corp with a short position of AXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumco Corp and AXT.

Diversification Opportunities for Sumco Corp and AXT

0.55

Correlation Coefficient

Sumco Corp  AXT

Very weak diversification

The 3 months correlation between Sumco and AXT is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sumco Corp ADR and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc and Sumco Corp 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 Sumco Corp ADR are associated (or correlated) with AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of Sumco Corp i.e., Sumco Corp and AXT go up and down completely randomly.

Pair Corralation between Sumco Corp and AXT

Assuming the 90 days horizon Sumco Corp is expected to generate 1.23 times less return on investment than AXT. But when comparing it to its historical volatility, Sumco Corp ADR is 1.67 times less risky than AXT. It trades about 0.07 of its potential returns per unit of risk. AXT Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  221.00  in AXT Inc on October 1, 2024 and sell it today you would earn a total of  7.00  from holding AXT Inc or generate 3.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Sumco Corp ADR  vs.  AXT Inc

Sumco Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumco Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

AXT Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AXT Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, AXT is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Sumco Corp and AXT

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

The idea behind Sumco Corp ADR and AXT Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.