Correlation Between Diodes Incorporated and First Solar

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

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

Diversification Opportunities for Diodes Incorporated and First Solar

0.6

Correlation Coefficient

Diodes Incorporated  First Solar

Poor diversification

The 3 months correlation between Diodes and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Diodes Incorporated and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar and Diodes Incorporated 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 Diodes Incorporated are associated (or correlated) with First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Diodes Incorporated i.e., Diodes Incorporated and First Solar go up and down completely randomly.

Pair Corralation between Diodes Incorporated and First Solar

Given the investment horizon of 90 days Diodes Incorporated is expected to under-perform the First Solar. But the stock apears to be less risky and, when comparing its historical volatility, Diodes Incorporated is 1.17 times less risky than First Solar. The stock trades about -0.02 of its potential returns per unit of risk. The First Solar is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,287  in First Solar on February 18, 2025 and sell it today you would earn a total of  1,559  from holding First Solar or generate 9.57% return on investment over 90 days.

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

Diodes Incorporated  vs.  First Solar

Diodes Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

First Solar

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Solar are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent essential indicators, First Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diodes Incorporated and First Solar

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

The idea behind Diodes Incorporated and First Solar 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.