Correlation Between Pure Storage and Deswell Industries

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

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

Diversification Opportunities for Pure Storage and Deswell Industries

0.78

Correlation Coefficient

Pure Storage  Deswell Industries

Poor diversification

The 3 months correlation between Pure and Deswell is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Pure Storage and Deswell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deswell Industries and Pure Storage 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 Pure Storage are associated (or correlated) with Deswell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deswell Industries has no effect on the direction of Pure Storage i.e., Pure Storage and Deswell Industries go up and down completely randomly.

Pair Corralation between Pure Storage and Deswell Industries

Given the investment horizon of 90 days Pure Storage is expected to generate 1.14 times more return on investment than Deswell Industries. However, Pure Storage is 1.14 times more volatile than Deswell Industries. It trades about 0.22 of its potential returns per unit of risk. Deswell Industries is currently generating about 0.06 per unit of risk. If you would invest  5,077  in Pure Storage on March 14, 2024 and sell it today you would earn a total of  1,612  from holding Pure Storage or generate 31.75% return on investment over 90 days.

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

Pure Storage  vs.  Deswell Industries

Pure Storage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Storage are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Pure Storage reported solid returns over the last few months and may actually be approaching a breakup point.

Deswell Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Deswell Industries may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Pure Storage and Deswell Industries

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

The idea behind Pure Storage and Deswell Industries 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.