Correlation Between Leader Electronics and AVY Precision

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Can any of the company-specific risk be diversified away by investing in both Leader Electronics and AVY Precision 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 Leader Electronics and AVY Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leader Electronics and AVY Precision Technology, you can compare the effects of market volatilities on Leader Electronics and AVY Precision 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 Leader Electronics with a short position of AVY Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leader Electronics and AVY Precision.

Diversification Opportunities for Leader Electronics and AVY Precision

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Leader and AVY is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and AVY Precision Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVY Precision Technology and Leader Electronics 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 Leader Electronics are associated (or correlated) with AVY Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVY Precision Technology has no effect on the direction of Leader Electronics i.e., Leader Electronics and AVY Precision go up and down completely randomly.

Pair Corralation between Leader Electronics and AVY Precision

Assuming the 90 days trading horizon Leader Electronics is expected to generate 1.02 times more return on investment than AVY Precision. However, Leader Electronics is 1.02 times more volatile than AVY Precision Technology. It trades about -0.14 of its potential returns per unit of risk. AVY Precision Technology is currently generating about -0.16 per unit of risk. If you would invest  1,780  in Leader Electronics on September 6, 2024 and sell it today you would lose (105.00) from holding Leader Electronics or give up 5.9% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Leader Electronics  vs.  AVY Precision Technology

 Performance 
       Timeline  
Leader Electronics 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Leader Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.
AVY Precision Technology 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AVY Precision Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Leader Electronics and AVY Precision Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Leader Electronics and AVY Precision

The main advantage of trading using opposite Leader Electronics and AVY Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leader Electronics position performs unexpectedly, AVY Precision 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 AVY Precision will offset losses from the drop in AVY Precision's long position.
The idea behind Leader Electronics and AVY Precision Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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