Correlation Between Deswell Industries and Eltek

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

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

Diversification Opportunities for Deswell Industries and Eltek

0.63

Correlation Coefficient

Deswell Industries  Eltek

Poor diversification

The 3 months correlation between Deswell and Eltek is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and Eltek in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eltek and Deswell Industries 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 Deswell Industries are associated (or correlated) with Eltek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eltek has no effect on the direction of Deswell Industries i.e., Deswell Industries and Eltek go up and down completely randomly.

Pair Corralation between Deswell Industries and Eltek

Given the investment horizon of 90 days Deswell Industries is expected to generate 0.5 times more return on investment than Eltek. However, Deswell Industries is 2.02 times less risky than Eltek. It trades about 0.1 of its potential returns per unit of risk. Eltek is currently generating about -0.06 per unit of risk. If you would invest  225.00  in Deswell Industries on January 25, 2024 and sell it today you would earn a total of  6.00  from holding Deswell Industries or generate 2.67% return on investment over 90 days.

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

Deswell Industries  vs.  Eltek

Deswell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Eltek

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Deswell Industries and Eltek

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

The idea behind Deswell Industries and Eltek 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.