Correlation Between Richardson Electronics and CTS

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

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

Diversification Opportunities for Richardson Electronics and CTS

0.81

Correlation Coefficient

Richardson Electronics  CTS

Very poor diversification

The 3 months correlation between Richardson and CTS is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and CTS Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTS Corporation and Richardson Electronics 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 Richardson Electronics are associated (or correlated) with CTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTS Corporation has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and CTS go up and down completely randomly.

Pair Corralation between Richardson Electronics and CTS

Given the investment horizon of 90 days Richardson Electronics is expected to generate 1.69 times less return on investment than CTS. But when comparing it to its historical volatility, Richardson Electronics is 1.65 times less risky than CTS. It trades about 0.15 of its potential returns per unit of risk. CTS Corporation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,152  in CTS Corporation on September 4, 2024 and sell it today you would earn a total of  487.00  from holding CTS Corporation or generate 9.45% return on investment over 90 days.

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

Richardson Electronics  vs.  CTS Corp.

Richardson Electronics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Richardson Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

CTS Corporation

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTS Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CTS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Richardson Electronics and CTS

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

The idea behind Richardson Electronics and CTS Corporation 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.