Correlation Between NLIGHT and MagnaChip Semiconductor
Can any of the company-specific risk be diversified away by investing in both NLIGHT and MagnaChip Semiconductor 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 NLIGHT and MagnaChip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between nLIGHT Inc and MagnaChip Semiconductor, you can compare the effects of market volatilities on NLIGHT and MagnaChip Semiconductor 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 NLIGHT with a short position of MagnaChip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of NLIGHT and MagnaChip Semiconductor.
Diversification Opportunities for NLIGHT and MagnaChip Semiconductor
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between NLIGHT and MagnaChip is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor and NLIGHT 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 nLIGHT Inc are associated (or correlated) with MagnaChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MagnaChip Semiconductor has no effect on the direction of NLIGHT i.e., NLIGHT and MagnaChip Semiconductor go up and down completely randomly.
Pair Corralation between NLIGHT and MagnaChip Semiconductor
Given the investment horizon of 90 days nLIGHT Inc is expected to generate 1.55 times more return on investment than MagnaChip Semiconductor. However, NLIGHT is 1.55 times more volatile than MagnaChip Semiconductor. It trades about 0.01 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.07 per unit of risk. If you would invest 1,257 in nLIGHT Inc on November 2, 2024 and sell it today you would lose (121.50) from holding nLIGHT Inc or give up 9.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
nLIGHT Inc vs. MagnaChip Semiconductor
Performance |
| Timeline |
| nLIGHT Inc |
| MagnaChip Semiconductor |
NLIGHT and MagnaChip Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NLIGHT and MagnaChip Semiconductor
The main advantage of trading using opposite NLIGHT and MagnaChip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NLIGHT position performs unexpectedly, MagnaChip Semiconductor 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 MagnaChip Semiconductor will offset losses from the drop in MagnaChip Semiconductor's long position.The idea behind nLIGHT Inc and MagnaChip Semiconductor 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.| MagnaChip Semiconductor vs. CEVA Inc | MagnaChip Semiconductor vs. MACOM Technology Solutions | MagnaChip Semiconductor vs. FormFactor | MagnaChip Semiconductor vs. MaxLinear |
Check out your portfolio center.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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