Correlation Between Tokyo Electron and Teradyne

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

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

Diversification Opportunities for Tokyo Electron and Teradyne

0.8

Correlation Coefficient

Tokyo Electron  Teradyne

Very poor diversification

The 3 months correlation between Tokyo and Teradyne is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron Limited and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne and Tokyo Electron 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 Tokyo Electron Limited are associated (or correlated) with Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and Teradyne go up and down completely randomly.

Pair Corralation between Tokyo Electron and Teradyne

Assuming the 90 days horizon Tokyo Electron Limited is expected to under-perform the Teradyne. In addition to that, Tokyo Electron is 1.04 times more volatile than Teradyne. It trades about 0.0 of its total potential returns per unit of risk. Teradyne is currently generating about 0.0 per unit of volatility. If you would invest  11,580  in Teradyne on September 16, 2024 and sell it today you would lose (158.00) from holding Teradyne or give up 1.36% of portfolio value over 90 days.

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

Tokyo Electron Limited  vs.  Teradyne

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electron Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Teradyne is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tokyo Electron and Teradyne

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

The idea behind Tokyo Electron Limited and Teradyne 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.