Correlation Between Advantech and Ligitek Electronics
Can any of the company-specific risk be diversified away by investing in both Advantech and Ligitek 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 Advantech and Ligitek Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advantech Co and Ligitek Electronics Co, you can compare the effects of market volatilities on Advantech and Ligitek 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 Advantech with a short position of Ligitek Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advantech and Ligitek Electronics.
Diversification Opportunities for Advantech and Ligitek Electronics
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Advantech and Ligitek is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and Ligitek Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ligitek Electronics and Advantech 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 Advantech Co are associated (or correlated) with Ligitek Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ligitek Electronics has no effect on the direction of Advantech i.e., Advantech and Ligitek Electronics go up and down completely randomly.
Pair Corralation between Advantech and Ligitek Electronics
Assuming the 90 days trading horizon Advantech Co is expected to generate 0.47 times more return on investment than Ligitek Electronics. However, Advantech Co is 2.14 times less risky than Ligitek Electronics. It trades about 0.22 of its potential returns per unit of risk. Ligitek Electronics Co is currently generating about -0.07 per unit of risk. If you would invest 35,400 in Advantech Co on November 7, 2024 and sell it today you would earn a total of 2,500 from holding Advantech Co or generate 7.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 87.5% |
| Values | Daily Returns |
Advantech Co vs. Ligitek Electronics Co
Performance |
| Timeline |
| Advantech |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Ligitek Electronics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Advantech and Ligitek Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advantech and Ligitek Electronics
The main advantage of trading using opposite Advantech and Ligitek Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advantech position performs unexpectedly, Ligitek 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 Ligitek Electronics will offset losses from the drop in Ligitek Electronics' long position.The idea behind Advantech Co and Ligitek Electronics Co 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.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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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