Correlation Between Tokyo Electron and Advantest

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

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

Diversification Opportunities for Tokyo Electron and Advantest

0.46

Correlation Coefficient

Tokyo Electron  Advantest

Very weak diversification

The 3 months correlation between Tokyo and Advantest is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electron and Advantest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantest and Tokyo Electron 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 Tokyo Electron are associated (or correlated) with Advantest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantest has no effect on the direction of Tokyo Electron i.e., Tokyo Electron and Advantest go up and down completely randomly.

Pair Corralation between Tokyo Electron and Advantest

Assuming the 90 days horizon Tokyo Electron is expected to generate 39.21 times less return on investment than Advantest. But when comparing it to its historical volatility, Tokyo Electron is 25.75 times less risky than Advantest. It trades about 0.1 of its potential returns per unit of risk. Advantest is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  7,575  in Advantest on January 25, 2024 and sell it today you would lose (4,258) from holding Advantest or give up 56.21% of portfolio value over 90 days.

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

Tokyo Electron  vs.  Advantest

Tokyo Electron

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Tokyo Electron reported solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tokyo Electron and Advantest

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

The idea behind Tokyo Electron and Advantest 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.