Correlation Between LSI Industries and Richardson Electronics

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

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

Diversification Opportunities for LSI Industries and Richardson Electronics

0.8

Correlation Coefficient

LSI Industries  Richardson Electronics

Very poor diversification

The 3 months correlation between LSI and Richardson is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding LSI Industries and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics and LSI Industries 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 LSI Industries are associated (or correlated) with Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of LSI Industries i.e., LSI Industries and Richardson Electronics go up and down completely randomly.

Pair Corralation between LSI Industries and Richardson Electronics

Given the investment horizon of 90 days LSI Industries is expected to generate 0.91 times more return on investment than Richardson Electronics. However, LSI Industries is 1.1 times less risky than Richardson Electronics. It trades about 0.37 of its potential returns per unit of risk. Richardson Electronics is currently generating about 0.23 per unit of risk. If you would invest  1,531  in LSI Industries on August 14, 2024 and sell it today you would earn a total of  543.00  from holding LSI Industries or generate 35.47% return on investment over 90 days.

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

LSI Industries  vs.  Richardson Electronics

LSI Industries

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LSI Industries are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, LSI Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Richardson Electronics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Richardson Electronics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LSI Industries and Richardson Electronics

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

The idea behind LSI Industries and Richardson Electronics 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.