Correlation Between Information Technology and WIN Semiconductors
Can any of the company-specific risk be diversified away by investing in both Information Technology and WIN Semiconductors 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 Information Technology and WIN Semiconductors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Information Technology Total and WIN Semiconductors, you can compare the effects of market volatilities on Information Technology and WIN Semiconductors 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 Information Technology with a short position of WIN Semiconductors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and WIN Semiconductors.
Diversification Opportunities for Information Technology and WIN Semiconductors
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Information and WIN is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and WIN Semiconductors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WIN Semiconductors and Information Technology 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 Information Technology Total are associated (or correlated) with WIN Semiconductors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WIN Semiconductors has no effect on the direction of Information Technology i.e., Information Technology and WIN Semiconductors go up and down completely randomly.
Pair Corralation between Information Technology and WIN Semiconductors
Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.65 times more return on investment than WIN Semiconductors. However, Information Technology is 1.65 times more volatile than WIN Semiconductors. It trades about 0.01 of its potential returns per unit of risk. WIN Semiconductors is currently generating about -0.18 per unit of risk. If you would invest 4,760 in Information Technology Total on September 12, 2024 and sell it today you would earn a total of 10.00 from holding Information Technology Total or generate 0.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. WIN Semiconductors
Performance |
| Timeline |
| Information Technology |
| WIN Semiconductors |
Information Technology and WIN Semiconductors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and WIN Semiconductors
The main advantage of trading using opposite Information Technology and WIN Semiconductors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, WIN Semiconductors 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 WIN Semiconductors will offset losses from the drop in WIN Semiconductors' long position.The idea behind Information Technology Total and WIN Semiconductors 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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