Correlation Between Allegro Microsystems and Diodes Incorporated

Can any of the company-specific risk be diversified away by investing in both Allegro Microsystems and Diodes Incorporated 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 Allegro Microsystems and Diodes Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Allegro Microsystems and Diodes Incorporated, you can compare the effects of market volatilities on Allegro Microsystems and Diodes Incorporated 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 Allegro Microsystems with a short position of Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allegro Microsystems and Diodes Incorporated.

Diversification Opportunities for Allegro Microsystems and Diodes Incorporated

0.56

Correlation Coefficient

Allegro Microsystems  Diodes Incorporated

Very weak diversification

The 3 months correlation between Allegro and Diodes is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Allegro Microsystems and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated and Allegro Microsystems 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 Allegro Microsystems are associated (or correlated) with Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Allegro Microsystems i.e., Allegro Microsystems and Diodes Incorporated go up and down completely randomly.

Pair Corralation between Allegro Microsystems and Diodes Incorporated

Given the investment horizon of 90 days Allegro Microsystems is expected to under-perform the Diodes Incorporated. In addition to that, Allegro Microsystems is 1.07 times more volatile than Diodes Incorporated. It trades about -0.01 of its total potential returns per unit of risk. Diodes Incorporated is currently generating about 0.01 per unit of volatility. If you would invest  6,409  in Diodes Incorporated on September 30, 2024 and sell it today you would lose (4.00) from holding Diodes Incorporated or give up 0.06% of portfolio value over 90 days.

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

Allegro Microsystems  vs.  Diodes Incorporated

Allegro Microsystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegro Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Allegro Microsystems is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Diodes Incorporated

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Allegro Microsystems and Diodes Incorporated

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

The idea behind Allegro Microsystems and Diodes Incorporated 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.