Correlation Between Renesas Electronics and Power Integrations

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

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

Diversification Opportunities for Renesas Electronics and Power Integrations

0.29

Correlation Coefficient

Renesas Electronics  Power Integrations

Modest diversification

The 3 months correlation between Renesas and Power is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations and Renesas Electronics 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 Renesas Electronics are associated (or correlated) with Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Power Integrations go up and down completely randomly.

Pair Corralation between Renesas Electronics and Power Integrations

Assuming the 90 days horizon Renesas Electronics is expected to under-perform the Power Integrations. In addition to that, Renesas Electronics is 1.5 times more volatile than Power Integrations. It trades about -0.08 of its total potential returns per unit of risk. Power Integrations is currently generating about -0.08 per unit of volatility. If you would invest  7,067  in Power Integrations on January 31, 2024 and sell it today you would lose (277.00) from holding Power Integrations or give up 3.92% of portfolio value over 90 days.

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

Renesas Electronics  vs.  Power Integrations

Renesas Electronics

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Renesas Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Power Integrations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Integrations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Renesas Electronics and Power Integrations

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

The idea behind Renesas Electronics and Power Integrations 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.