Correlation Between Allegro Microsystems and Power Integrations

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

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

Diversification Opportunities for Allegro Microsystems and Power Integrations

0.43

Correlation Coefficient

Allegro Microsystems  Power Integrations

Very weak diversification

The 3 months correlation between Allegro and Power is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Allegro Microsystems and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations 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 Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of Allegro Microsystems i.e., Allegro Microsystems and Power Integrations go up and down completely randomly.

Pair Corralation between Allegro Microsystems and Power Integrations

Given the investment horizon of 90 days Allegro Microsystems is expected to under-perform the Power Integrations. In addition to that, Allegro Microsystems is 1.35 times more volatile than Power Integrations. It trades about -0.01 of its total potential returns per unit of risk. Power Integrations is currently generating about 0.0 per unit of volatility. If you would invest  6,391  in Power Integrations on September 30, 2024 and sell it today you would lose (91.00) from holding Power Integrations or give up 1.42% 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.  Power Integrations

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.

Power Integrations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Integrations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Power Integrations is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Allegro Microsystems and Power Integrations

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

The idea behind Allegro Microsystems and Power Integrations 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..