Correlation Between Elan Microelectronics and Lelon Electronics
Can any of the company-specific risk be diversified away by investing in both Elan Microelectronics and Lelon 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 Elan Microelectronics and Lelon Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elan Microelectronics Corp and Lelon Electronics Corp, you can compare the effects of market volatilities on Elan Microelectronics and Lelon 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 Elan Microelectronics with a short position of Lelon Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elan Microelectronics and Lelon Electronics.
Diversification Opportunities for Elan Microelectronics and Lelon Electronics
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Elan and Lelon is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Elan Microelectronics Corp and Lelon Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lelon Electronics Corp and Elan Microelectronics 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 Elan Microelectronics Corp are associated (or correlated) with Lelon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lelon Electronics Corp has no effect on the direction of Elan Microelectronics i.e., Elan Microelectronics and Lelon Electronics go up and down completely randomly.
Pair Corralation between Elan Microelectronics and Lelon Electronics
Assuming the 90 days trading horizon Elan Microelectronics Corp is expected to under-perform the Lelon Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Elan Microelectronics Corp is 1.68 times less risky than Lelon Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Lelon Electronics Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 7,800 in Lelon Electronics Corp on October 23, 2024 and sell it today you would earn a total of 1,770 from holding Lelon Electronics Corp or generate 22.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Elan Microelectronics Corp vs. Lelon Electronics Corp
Performance |
| Timeline |
| Elan Microelectronics |
| Lelon Electronics Corp |
Elan Microelectronics and Lelon Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Elan Microelectronics and Lelon Electronics
The main advantage of trading using opposite Elan Microelectronics and Lelon Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elan Microelectronics position performs unexpectedly, Lelon 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 Lelon Electronics will offset losses from the drop in Lelon Electronics' long position.The idea behind Elan Microelectronics Corp and Lelon Electronics Corp 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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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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