Correlation Between Standard Foods and Leader Electronics
Can any of the company-specific risk be diversified away by investing in both Standard Foods and Leader 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 Standard Foods and Leader Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Standard Foods Corp and Leader Electronics, you can compare the effects of market volatilities on Standard Foods and Leader 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 Standard Foods with a short position of Leader Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Foods and Leader Electronics.
Diversification Opportunities for Standard Foods and Leader Electronics
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Standard and Leader is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Standard Foods Corp and Leader Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Electronics and Standard Foods 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 Standard Foods Corp are associated (or correlated) with Leader Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Electronics has no effect on the direction of Standard Foods i.e., Standard Foods and Leader Electronics go up and down completely randomly.
Pair Corralation between Standard Foods and Leader Electronics
Assuming the 90 days trading horizon Standard Foods Corp is expected to generate 0.36 times more return on investment than Leader Electronics. However, Standard Foods Corp is 2.81 times less risky than Leader Electronics. It trades about -0.03 of its potential returns per unit of risk. Leader Electronics is currently generating about -0.11 per unit of risk. If you would invest 3,830 in Standard Foods Corp on September 12, 2024 and sell it today you would lose (45.00) from holding Standard Foods Corp or give up 1.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Standard Foods Corp vs. Leader Electronics
Performance |
| Timeline |
| Standard Foods Corp |
| Leader Electronics |
Standard Foods and Leader Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Standard Foods and Leader Electronics
The main advantage of trading using opposite Standard Foods and Leader Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Foods position performs unexpectedly, Leader 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 Leader Electronics will offset losses from the drop in Leader Electronics' long position.| Standard Foods vs. Uni President Enterprises Corp | Standard Foods vs. Great Wall Enterprise | Standard Foods vs. Ruentex Development Co | Standard Foods vs. WiseChip Semiconductor |
| Leader Electronics vs. Yang Ming Marine | Leader Electronics vs. Wan Hai Lines | Leader Electronics vs. U Ming Marine Transport | Leader Electronics vs. Taiwan Navigation Co |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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