Correlation Between Teradyne and MACOM Technology
Can any of the company-specific risk be diversified away by investing in both Teradyne and MACOM Technology 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 Teradyne and MACOM Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Teradyne and MACOM Technology Solutions, you can compare the effects of market volatilities on Teradyne and MACOM Technology 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 Teradyne with a short position of MACOM Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teradyne and MACOM Technology.
Diversification Opportunities for Teradyne and MACOM Technology
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Teradyne and MACOM is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol and Teradyne 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 Teradyne are associated (or correlated) with MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of Teradyne i.e., Teradyne and MACOM Technology go up and down completely randomly.
Pair Corralation between Teradyne and MACOM Technology
Considering the 90-day investment horizon Teradyne is expected to under-perform the MACOM Technology. But the stock apears to be less risky and, when comparing its historical volatility, Teradyne is 1.81 times less risky than MACOM Technology. The stock trades about -0.03 of its potential returns per unit of risk. The MACOM Technology Solutions is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 11,754 in MACOM Technology Solutions on August 28, 2024 and sell it today you would earn a total of 1,710 from holding MACOM Technology Solutions or generate 14.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Teradyne vs. MACOM Technology Solutions
Performance |
| Timeline |
| Teradyne |
| MACOM Technology Sol |
Teradyne and MACOM Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Teradyne and MACOM Technology
The main advantage of trading using opposite Teradyne and MACOM Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teradyne position performs unexpectedly, MACOM Technology 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 MACOM Technology will offset losses from the drop in MACOM Technology's long position.The idea behind Teradyne and MACOM Technology Solutions 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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