Correlation Between Richardson Electronics and Bel Fuse

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

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

Diversification Opportunities for Richardson Electronics and Bel Fuse

0.76

Correlation Coefficient

Richardson Electronics  Bel Fuse

Poor diversification

The 3 months correlation between Richardson and Bel is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Richardson Electronics and Bel Fuse A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bel Fuse A and Richardson 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 Richardson Electronics are associated (or correlated) with Bel Fuse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bel Fuse A has no effect on the direction of Richardson Electronics i.e., Richardson Electronics and Bel Fuse go up and down completely randomly.

Pair Corralation between Richardson Electronics and Bel Fuse

Given the investment horizon of 90 days Richardson Electronics is expected to under-perform the Bel Fuse. In addition to that, Richardson Electronics is 1.03 times more volatile than Bel Fuse A. It trades about -0.01 of its total potential returns per unit of risk. Bel Fuse A is currently generating about 0.09 per unit of volatility. If you would invest  3,494  in Bel Fuse A on August 11, 2024 and sell it today you would earn a total of  6,831  from holding Bel Fuse A or generate 195.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Richardson Electronics  vs.  Bel Fuse A

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.

Bel Fuse A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bel Fuse A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting technical and fundamental indicators, Bel Fuse sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Richardson Electronics and Bel Fuse

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

The idea behind Richardson Electronics and Bel Fuse A 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.