Correlation Between Intel and Flex
Can any of the company-specific risk be diversified away by investing in both Intel and Flex 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 Intel and Flex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intel and Flex, you can compare the effects of market volatilities on Intel and Flex 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 Intel with a short position of Flex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intel and Flex.
Diversification Opportunities for Intel and Flex
Very poor diversification
The 3 months correlation between Intel and Flex is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Intel and Flex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex and Intel 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 Intel are associated (or correlated) with Flex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex has no effect on the direction of Intel i.e., Intel and Flex go up and down completely randomly.
Pair Corralation between Intel and Flex
Given the investment horizon of 90 days Intel is expected to under-perform the Flex. But the stock apears to be less risky and, when comparing its historical volatility, Intel is 1.6 times less risky than Flex. The stock trades about -0.05 of its potential returns per unit of risk. The Flex is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,182 in Flex on August 27, 2024 and sell it today you would earn a total of 2,948 from holding Flex or generate 249.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intel vs. Flex
Performance |
| Timeline |
| Intel |
| Flex |
Intel and Flex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Intel and Flex
The main advantage of trading using opposite Intel and Flex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intel position performs unexpectedly, Flex 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 Flex will offset losses from the drop in Flex's long position.The idea behind Intel and Flex 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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