Correlation Between Emerson Radio and NLIGHT

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

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

Diversification Opportunities for Emerson Radio and NLIGHT

-0.19

Correlation Coefficient

Emerson Radio  NLIGHT

Good diversification

The 3 months correlation between Emerson and NLIGHT is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Radio and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc and Emerson Radio 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 Emerson Radio are associated (or correlated) with NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Emerson Radio i.e., Emerson Radio and NLIGHT go up and down completely randomly.

Pair Corralation between Emerson Radio and NLIGHT

Considering the 90-day investment horizon Emerson Radio is expected to generate 3.65 times less return on investment than NLIGHT. But when comparing it to its historical volatility, Emerson Radio is 1.16 times less risky than NLIGHT. It trades about 0.09 of its potential returns per unit of risk. nLIGHT Inc is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,167  in nLIGHT Inc on February 12, 2024 and sell it today you would earn a total of  174.00  from holding nLIGHT Inc or generate 14.91% return on investment over 90 days.

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

Emerson Radio  vs.  nLIGHT Inc

Emerson Radio

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Radio are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Emerson Radio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

nLIGHT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, NLIGHT is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Emerson Radio and NLIGHT

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

The idea behind Emerson Radio and nLIGHT 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.