Correlation Between Advantest and Tokyo Electron

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

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

Diversification Opportunities for Advantest and Tokyo Electron

0.54

Correlation Coefficient

Advantest  Tokyo Electron

Very weak diversification

The 3 months correlation between Advantest and Tokyo is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Advantest and Tokyo Electron Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron and Advantest 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 Advantest are associated (or correlated) with Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Advantest i.e., Advantest and Tokyo Electron go up and down completely randomly.

Pair Corralation between Advantest and Tokyo Electron

Assuming the 90 days horizon Advantest is expected to under-perform the Tokyo Electron. In addition to that, Advantest is 1.12 times more volatile than Tokyo Electron Ltd. It trades about -0.4 of its total potential returns per unit of risk. Tokyo Electron Ltd is currently generating about -0.15 per unit of volatility. If you would invest  12,567  in Tokyo Electron Ltd on January 20, 2024 and sell it today you would lose (920.00) from holding Tokyo Electron Ltd or give up 7.32% of portfolio value over 90 days.

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

Advantest  vs.  Tokyo Electron Ltd

Advantest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advantest has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Advantest is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tokyo Electron

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Tokyo Electron showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantest and Tokyo Electron

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

The idea behind Advantest and Tokyo Electron Ltd 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.