Correlation Between Desktop Metal and Super Micro

Can any of the company-specific risk be diversified away by investing in both Desktop Metal and Super Micro 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 Desktop Metal and Super Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Desktop Metal and Super Micro Computer, you can compare the effects of market volatilities on Desktop Metal and Super Micro 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 Desktop Metal with a short position of Super Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Desktop Metal and Super Micro.

Diversification Opportunities for Desktop Metal and Super Micro

0.35

Correlation Coefficient

Desktop Metal  Super Micro

Weak diversification

The 3 months correlation between Desktop and Super is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Super Micro Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Super Micro Computer and Desktop Metal 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 Desktop Metal are associated (or correlated) with Super Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Super Micro Computer has no effect on the direction of Desktop Metal i.e., Desktop Metal and Super Micro go up and down completely randomly.

Pair Corralation between Desktop Metal and Super Micro

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Super Micro. But the stock apears to be less risky and, when comparing its historical volatility, Desktop Metal is 2.91 times less risky than Super Micro. The stock trades about -0.02 of its potential returns per unit of risk. The Super Micro Computer is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,377  in Super Micro Computer on August 30, 2024 and sell it today you would lose (870.00) from holding Super Micro Computer or give up 19.88% of portfolio value over 90 days.

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

Desktop Metal  vs.  Super Micro Computer

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Super Micro Computer

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Desktop Metal and Super Micro

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

The idea behind Desktop Metal and Super Micro Computer 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.