Correlation Between Radiant Opto and Faraday Technology
Can any of the company-specific risk be diversified away by investing in both Radiant Opto and Faraday Technology 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 Radiant Opto and Faraday Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Radiant Opto Electronics Corp and Faraday Technology Corp, you can compare the effects of market volatilities on Radiant Opto and Faraday Technology 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 Radiant Opto with a short position of Faraday Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Radiant Opto and Faraday Technology.
Diversification Opportunities for Radiant Opto and Faraday Technology
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Radiant and Faraday is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Radiant Opto Electronics Corp and Faraday Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Technology Corp and Radiant Opto 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 Radiant Opto Electronics Corp are associated (or correlated) with Faraday Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Technology Corp has no effect on the direction of Radiant Opto i.e., Radiant Opto and Faraday Technology go up and down completely randomly.
Pair Corralation between Radiant Opto and Faraday Technology
Assuming the 90 days trading horizon Radiant Opto Electronics Corp is expected to generate 0.66 times more return on investment than Faraday Technology. However, Radiant Opto Electronics Corp is 1.51 times less risky than Faraday Technology. It trades about -0.01 of its potential returns per unit of risk. Faraday Technology Corp is currently generating about -0.06 per unit of risk. If you would invest 20,100 in Radiant Opto Electronics Corp on September 1, 2024 and sell it today you would lose (1,050) from holding Radiant Opto Electronics Corp or give up 5.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Radiant Opto Electronics Corp vs. Faraday Technology Corp
Performance |
| Timeline |
| Radiant Opto Electro |
| Faraday Technology Corp |
Radiant Opto and Faraday Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Radiant Opto and Faraday Technology
The main advantage of trading using opposite Radiant Opto and Faraday Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Radiant Opto position performs unexpectedly, Faraday Technology 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 Faraday Technology will offset losses from the drop in Faraday Technology's long position.The idea behind Radiant Opto Electronics Corp and Faraday Technology 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.| Faraday Technology vs. Global Unichip Corp | Faraday Technology vs. Novatek Microelectronics Corp | Faraday Technology vs. Realtek Semiconductor Corp | Faraday Technology vs. Unimicron Technology Corp |
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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