Correlation Between Disco Corp and AXT

Can any of the company-specific risk be diversified away by investing in both Disco Corp and AXT 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 Disco Corp and AXT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Disco Corp ADR and AXT Inc, you can compare the effects of market volatilities on Disco Corp and AXT 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 Disco Corp with a short position of AXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disco Corp and AXT.

Diversification Opportunities for Disco Corp and AXT

0.26

Correlation Coefficient

Disco Corp  AXT

Modest diversification

The 3 months correlation between Disco and AXT is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Disco Corp ADR and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc and Disco Corp 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 Disco Corp ADR are associated (or correlated) with AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of Disco Corp i.e., Disco Corp and AXT go up and down completely randomly.

Pair Corralation between Disco Corp and AXT

Assuming the 90 days horizon Disco Corp ADR is expected to generate 0.33 times more return on investment than AXT. However, Disco Corp ADR is 3.07 times less risky than AXT. It trades about 0.11 of its potential returns per unit of risk. AXT Inc is currently generating about 0.01 per unit of risk. If you would invest  3,158  in Disco Corp ADR on February 23, 2024 and sell it today you would earn a total of  529.00  from holding Disco Corp ADR or generate 16.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Disco Corp ADR  vs.  AXT Inc

Disco Corp ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Disco Corp ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Disco Corp showed solid returns over the last few months and may actually be approaching a breakup point.

AXT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AXT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, AXT is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Disco Corp and AXT

The main advantage of trading using opposite Disco Corp and AXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disco Corp position performs unexpectedly, AXT 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 AXT will offset losses from the drop in AXT's long position.

The idea behind Disco Corp ADR and AXT Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.