Correlation Between Sporton International and Leader Electronics
Can any of the company-specific risk be diversified away by investing in both Sporton International 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 Sporton International and Leader Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sporton International and Leader Electronics, you can compare the effects of market volatilities on Sporton International 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 Sporton International with a short position of Leader Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sporton International and Leader Electronics.
Diversification Opportunities for Sporton International and Leader Electronics
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Sporton and Leader is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sporton International and Leader Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Electronics and Sporton International 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 Sporton International 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 Sporton International i.e., Sporton International and Leader Electronics go up and down completely randomly.
Pair Corralation between Sporton International and Leader Electronics
Assuming the 90 days trading horizon Sporton International is expected to generate 0.79 times more return on investment than Leader Electronics. However, Sporton International is 1.27 times less risky than Leader Electronics. It trades about -0.18 of its potential returns per unit of risk. Leader Electronics is currently generating about -0.15 per unit of risk. If you would invest 21,250 in Sporton International on August 30, 2024 and sell it today you would lose (1,150) from holding Sporton International or give up 5.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sporton International vs. Leader Electronics
Performance |
| Timeline |
| Sporton International |
| Leader Electronics |
Sporton International and Leader Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sporton International and Leader Electronics
The main advantage of trading using opposite Sporton International and Leader Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sporton International 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.The idea behind Sporton International and Leader Electronics 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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