Correlation Between Trio Tech and Diodes Incorporated

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

By analyzing existing cross correlation between Trio Tech International and Diodes Incorporated, you can compare the effects of market volatilities on Trio Tech and Diodes Incorporated 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 Trio Tech with a short position of Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trio Tech and Diodes Incorporated.

Diversification Opportunities for Trio Tech and Diodes Incorporated

0.1

Correlation Coefficient

Trio Tech  Diodes Incorporated

Average diversification

The 3 months correlation between Trio and Diodes is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Trio Tech International and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated and Trio Tech 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 Trio Tech International are associated (or correlated) with Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Trio Tech i.e., Trio Tech and Diodes Incorporated go up and down completely randomly.

Pair Corralation between Trio Tech and Diodes Incorporated

Considering the 90-day investment horizon Trio Tech International is expected to under-perform the Diodes Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Trio Tech International is 1.12 times less risky than Diodes Incorporated. The stock trades about -0.21 of its potential returns per unit of risk. The Diodes Incorporated is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  6,630  in Diodes Incorporated on September 25, 2024 and sell it today you would lose (280.00) from holding Diodes Incorporated or give up 4.22% of portfolio value over 90 days.

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

Trio Tech International  vs.  Diodes Incorporated

Trio Tech International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trio Tech International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Trio Tech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Diodes Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Diodes Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Trio Tech and Diodes Incorporated

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

The idea behind Trio Tech International and Diodes Incorporated 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.