Correlation Between X FAB and Richardson Electronics

Can any of the company-specific risk be diversified away by investing in both X FAB and Richardson 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 X FAB and Richardson Electronics 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 Richardson Electronics, you can compare the effects of market volatilities on X FAB and Richardson 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 X FAB with a short position of Richardson Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and Richardson Electronics.

Diversification Opportunities for X FAB and Richardson Electronics

-0.46

Correlation Coefficient

X FAB  Richardson Electronics

Very good diversification

The 3 months correlation between XFB and Richardson is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and X FAB 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of X FAB i.e., X FAB and Richardson Electronics go up and down completely randomly.

Pair Corralation between X FAB and Richardson Electronics

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the Richardson Electronics. In addition to that, X FAB is 1.05 times more volatile than Richardson Electronics. It trades about -0.01 of its total potential returns per unit of risk. Richardson Electronics is currently generating about 0.13 per unit of volatility. If you would invest  1,063  in Richardson Electronics on September 26, 2024 and sell it today you would earn a total of  246.00  from holding Richardson Electronics or generate 23.14% return on investment over 90 days.

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

X FAB Silicon Foundries  vs.  Richardson Electronics

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 rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Richardson Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Richardson Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with X FAB and Richardson Electronics

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

The idea behind X FAB Silicon Foundries and Richardson 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.

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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.