Correlation Between ITE Tech and Elite Semiconductor
Can any of the company-specific risk be diversified away by investing in both ITE Tech and Elite Semiconductor 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 ITE Tech and Elite Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ITE Tech and Elite Semiconductor Memory, you can compare the effects of market volatilities on ITE Tech and Elite Semiconductor 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 ITE Tech with a short position of Elite Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITE Tech and Elite Semiconductor.
Diversification Opportunities for ITE Tech and Elite Semiconductor
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between ITE and Elite is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ITE Tech and Elite Semiconductor Memory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Semiconductor and ITE Tech 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 ITE Tech are associated (or correlated) with Elite Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Semiconductor has no effect on the direction of ITE Tech i.e., ITE Tech and Elite Semiconductor go up and down completely randomly.
Pair Corralation between ITE Tech and Elite Semiconductor
Assuming the 90 days trading horizon ITE Tech is expected to generate 0.9 times more return on investment than Elite Semiconductor. However, ITE Tech is 1.12 times less risky than Elite Semiconductor. It trades about -0.06 of its potential returns per unit of risk. Elite Semiconductor Memory is currently generating about -0.12 per unit of risk. If you would invest 17,100 in ITE Tech on September 1, 2024 and sell it today you would lose (3,050) from holding ITE Tech or give up 17.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.22% |
| Values | Daily Returns |
ITE Tech vs. Elite Semiconductor Memory
Performance |
| Timeline |
| ITE Tech |
| Elite Semiconductor |
ITE Tech and Elite Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ITE Tech and Elite Semiconductor
The main advantage of trading using opposite ITE Tech and Elite Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITE Tech position performs unexpectedly, Elite Semiconductor 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 Elite Semiconductor will offset losses from the drop in Elite Semiconductor's long position.The idea behind ITE Tech and Elite Semiconductor Memory 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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