Correlation Between Magnachip Semiconductor and Microsoft
Can any of the company-specific risk be diversified away by investing in both Magnachip Semiconductor and Microsoft 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 Magnachip Semiconductor and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Magnachip Semiconductor and Microsoft, you can compare the effects of market volatilities on Magnachip Semiconductor and Microsoft 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 Magnachip Semiconductor with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magnachip Semiconductor and Microsoft.
Diversification Opportunities for Magnachip Semiconductor and Microsoft
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Magnachip and Microsoft is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Magnachip Semiconductor and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Magnachip Semiconductor 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 Magnachip Semiconductor are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Magnachip Semiconductor i.e., Magnachip Semiconductor and Microsoft go up and down completely randomly.
Pair Corralation between Magnachip Semiconductor and Microsoft
Assuming the 90 days horizon Magnachip Semiconductor is expected to generate 2.72 times more return on investment than Microsoft. However, Magnachip Semiconductor is 2.72 times more volatile than Microsoft. It trades about 0.16 of its potential returns per unit of risk. Microsoft is currently generating about 0.28 per unit of risk. If you would invest 346.00 in Magnachip Semiconductor on September 13, 2024 and sell it today you would earn a total of 40.00 from holding Magnachip Semiconductor or generate 11.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Magnachip Semiconductor vs. Microsoft
Performance |
| Timeline |
| Magnachip Semiconductor |
| Microsoft |
Magnachip Semiconductor and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Magnachip Semiconductor and Microsoft
The main advantage of trading using opposite Magnachip Semiconductor and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magnachip Semiconductor position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.The idea behind Magnachip Semiconductor and Microsoft 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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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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