Correlation Between Tokyo Electron and Disco

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

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

Diversification Opportunities for Tokyo Electron and Disco

-0.2

Correlation Coefficient

Tokyo Electron  Disco

Good diversification

The @@bw1eo months correlation between Tokyo and Disco is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron and Disco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Disco and Tokyo Electron 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 Tokyo Electron are associated (or correlated) with Disco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Disco has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and Disco go up and down completely randomly.

Pair Corralation between Tokyo Electron and Disco

Assuming the 90 days horizon Tokyo Electron is expected to generate 0.56 times more return on investment than Disco. However, Tokyo Electron is 1.78 times less risky than Disco. It trades about -0.18 of its potential returns per unit of risk. Disco is currently generating about -0.47 per unit of risk. If you would invest  26,729  in Tokyo Electron on February 3, 2024 and sell it today you would lose (3,379) from holding Tokyo Electron or give up 12.64% of portfolio value over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	34.78%
Values	Daily Returns

Tokyo Electron  vs.  Disco

Tokyo Electron

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Disco

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Disco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tokyo Electron and Disco

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

The idea behind Tokyo Electron and Disco 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.