Correlation Between Flexible Solutions and Semtech

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

By analyzing existing cross correlation between Flexible Solutions International and Semtech, you can compare the effects of market volatilities on Flexible Solutions and Semtech 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 Flexible Solutions with a short position of Semtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flexible Solutions and Semtech.

Diversification Opportunities for Flexible Solutions and Semtech

0.78

Correlation Coefficient

Flexible Solutions  Semtech

Poor diversification

The 3 months correlation between Flexible and Semtech is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Flexible Solutions Internation and Semtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semtech and Flexible Solutions 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 Flexible Solutions International are associated (or correlated) with Semtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semtech has no effect on the direction of Flexible Solutions i.e., Flexible Solutions and Semtech go up and down completely randomly.

Pair Corralation between Flexible Solutions and Semtech

Considering the 90-day investment horizon Flexible Solutions is expected to generate 6.01 times less return on investment than Semtech. But when comparing it to its historical volatility, Flexible Solutions International is 1.41 times less risky than Semtech. It trades about 0.08 of its potential returns per unit of risk. Semtech is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  2,052  in Semtech on January 29, 2024 and sell it today you would earn a total of  1,525  from holding Semtech or generate 74.32% return on investment over 90 days.

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

Flexible Solutions Internation  vs.  Semtech

Flexible Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flexible Solutions International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Flexible Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Semtech

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flexible Solutions and Semtech

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

The idea behind Flexible Solutions International and Semtech 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.