Correlation Between NLIGHT and Transphorm Technology

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

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

Diversification Opportunities for NLIGHT and Transphorm Technology

0.48

Correlation Coefficient

NLIGHT  Transphorm Technology

Very weak diversification

The 3 months correlation between NLIGHT and Transphorm is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and Transphorm Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transphorm Technology and NLIGHT 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 nLIGHT Inc are associated (or correlated) with Transphorm Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transphorm Technology has no effect on the direction of NLIGHT i.e., NLIGHT and Transphorm Technology go up and down completely randomly.

Pair Corralation between NLIGHT and Transphorm Technology

Given the investment horizon of 90 days nLIGHT Inc is expected to under-perform the Transphorm Technology. In addition to that, NLIGHT is 4.54 times more volatile than Transphorm Technology. It trades about -0.02 of its total potential returns per unit of risk. Transphorm Technology is currently generating about -0.08 per unit of volatility. If you would invest  492.00  in Transphorm Technology on February 4, 2024 and sell it today you would lose (4.00) from holding Transphorm Technology or give up 0.81% of portfolio value over 90 days.

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

nLIGHT Inc  vs.  Transphorm Technology

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.

Transphorm Technology

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with NLIGHT and Transphorm Technology

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

The idea behind nLIGHT Inc and Transphorm Technology 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.