Correlation Between MACOM Technology and JAPAN AIRLINES

Can any of the company-specific risk be diversified away by investing in both MACOM Technology and JAPAN AIRLINES 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 MACOM Technology and JAPAN AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MACOM Technology Solutions and JAPAN AIRLINES, you can compare the effects of market volatilities on MACOM Technology and JAPAN AIRLINES 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 MACOM Technology with a short position of JAPAN AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of MACOM Technology and JAPAN AIRLINES.

Diversification Opportunities for MACOM Technology and JAPAN AIRLINES

0.36

Correlation Coefficient

MACOM Technology  JAPAN AIRLINES

Weak diversification

The 3 months correlation between MACOM and JAPAN is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding MACOM Technology Solutions and JAPAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN AIRLINES and MACOM 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 MACOM Technology Solutions are associated (or correlated) with JAPAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN AIRLINES has no effect on the direction of MACOM Technology i.e., MACOM Technology and JAPAN AIRLINES go up and down completely randomly.

Pair Corralation between MACOM Technology and JAPAN AIRLINES

Assuming the 90 days horizon MACOM Technology Solutions is expected to generate 2.29 times more return on investment than JAPAN AIRLINES. However, MACOM Technology is 2.29 times more volatile than JAPAN AIRLINES. It trades about 0.16 of its potential returns per unit of risk. JAPAN AIRLINES is currently generating about -0.01 per unit of risk. If you would invest  9,950  in MACOM Technology Solutions on September 27, 2024 and sell it today you would earn a total of  2,950  from holding MACOM Technology Solutions or generate 29.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MACOM Technology Solutions  vs.  JAPAN AIRLINES

MACOM Technology Sol

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MACOM Technology reported solid returns over the last few months and may actually be approaching a breakup point.

JAPAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MACOM Technology and JAPAN AIRLINES

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

The idea behind MACOM Technology Solutions and JAPAN AIRLINES 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.