Correlation Between Micron Technology and Analog Devices
Can any of the company-specific risk be diversified away by investing in both Micron Technology and Analog Devices 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 Micron Technology and Analog Devices into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Micron Technology and Analog Devices, you can compare the effects of market volatilities on Micron Technology and Analog Devices 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 Micron Technology with a short position of Analog Devices. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and Analog Devices.
Diversification Opportunities for Micron Technology and Analog Devices
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Micron and Analog is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Micron Technology 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 Micron Technology are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Micron Technology i.e., Micron Technology and Analog Devices go up and down completely randomly.
Pair Corralation between Micron Technology and Analog Devices
Allowing for the 90-day total investment horizon Micron Technology is expected to generate 1.36 times more return on investment than Analog Devices. However, Micron Technology is 1.36 times more volatile than Analog Devices. It trades about -0.02 of its potential returns per unit of risk. Analog Devices is currently generating about -0.05 per unit of risk. If you would invest 10,639 in Micron Technology on August 28, 2024 and sell it today you would lose (191.00) from holding Micron Technology or give up 1.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Micron Technology vs. Analog Devices
Performance |
| Timeline |
| Micron Technology |
| Analog Devices |
Micron Technology and Analog Devices Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Micron Technology and Analog Devices
The main advantage of trading using opposite Micron Technology and Analog Devices positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology position performs unexpectedly, Analog Devices 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 Analog Devices will offset losses from the drop in Analog Devices' long position.The idea behind Micron Technology and Analog Devices 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.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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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