Correlation Between X-FAB Silicon and Highlight Communications

Can any of the company-specific risk be diversified away by investing in both X-FAB Silicon and Highlight Communications 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 X-FAB Silicon and Highlight Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between X FAB Silicon Foundries and Highlight Communications AG, you can compare the effects of market volatilities on X-FAB Silicon and Highlight Communications 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 X-FAB Silicon with a short position of Highlight Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of X-FAB Silicon and Highlight Communications.

Diversification Opportunities for X-FAB Silicon and Highlight Communications

0.26

Correlation Coefficient

X-FAB Silicon  Highlight Communications

Modest diversification

The 3 months correlation between X-FAB and Highlight is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications and X-FAB Silicon 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 X FAB Silicon Foundries are associated (or correlated) with Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of X-FAB Silicon i.e., X-FAB Silicon and Highlight Communications go up and down completely randomly.

Pair Corralation between X-FAB Silicon and Highlight Communications

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 0.76 times more return on investment than Highlight Communications. However, X FAB Silicon Foundries is 1.32 times less risky than Highlight Communications. It trades about -0.07 of its potential returns per unit of risk. Highlight Communications AG is currently generating about -0.08 per unit of risk. If you would invest  540.00  in X FAB Silicon Foundries on September 2, 2024 and sell it today you would lose (90.00) from holding X FAB Silicon Foundries or give up 16.67% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  Highlight Communications AG

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Highlight Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highlight Communications AG 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 technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with X-FAB Silicon and Highlight Communications

The main advantage of trading using opposite X-FAB Silicon and Highlight Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X-FAB Silicon position performs unexpectedly, Highlight Communications 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 Highlight Communications will offset losses from the drop in Highlight Communications' long position.

The idea behind X FAB Silicon Foundries and Highlight Communications AG 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.