Correlation Between Garmin and Bonso Electronics

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

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

Diversification Opportunities for Garmin and Bonso Electronics

0.55

Correlation Coefficient

Garmin  Bonso Electronics

Very weak diversification

The 3 months correlation between Garmin and Bonso is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Garmin and Bonso Electronics Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bonso Electronics and Garmin 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 Garmin are associated (or correlated) with Bonso Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bonso Electronics has no effect on the direction of Garmin i.e., Garmin and Bonso Electronics go up and down completely randomly.

Pair Corralation between Garmin and Bonso Electronics

Given the investment horizon of 90 days Garmin is expected to generate 5.74 times less return on investment than Bonso Electronics. But when comparing it to its historical volatility, Garmin is 6.13 times less risky than Bonso Electronics. It trades about 0.05 of its potential returns per unit of risk. Bonso Electronics International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  280.00  in Bonso Electronics International on January 19, 2024 and sell it today you would lose (21.00) from holding Bonso Electronics International or give up 7.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	68.48%
Values	Daily Returns

Garmin  vs.  Bonso Electronics Internationa

Garmin

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garmin are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Garmin displayed solid returns over the last few months and may actually be approaching a breakup point.

Bonso Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bonso Electronics International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Bonso Electronics is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Garmin and Bonso Electronics

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

The idea behind Garmin and Bonso Electronics International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.