Correlation Between Monolithic Power and Canadian Solar

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

By analyzing existing cross correlation between Monolithic Power Systems and Canadian Solar, you can compare the effects of market volatilities on Monolithic Power and Canadian Solar 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 Monolithic Power with a short position of Canadian Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monolithic Power and Canadian Solar.

Diversification Opportunities for Monolithic Power and Canadian Solar

0.65

Correlation Coefficient

Monolithic Power  Canadian Solar

Poor diversification

The 3 months correlation between Monolithic and Canadian is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Canadian Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Solar and Monolithic Power 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 Monolithic Power Systems are associated (or correlated) with Canadian Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Solar has no effect on the direction of Monolithic Power i.e., Monolithic Power and Canadian Solar go up and down completely randomly.

Pair Corralation between Monolithic Power and Canadian Solar

Given the investment horizon of 90 days Monolithic Power Systems is expected to under-perform the Canadian Solar. But the stock apears to be less risky and, when comparing its historical volatility, Monolithic Power Systems is 1.53 times less risky than Canadian Solar. The stock trades about -0.14 of its potential returns per unit of risk. The Canadian Solar is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,366  in Canadian Solar on September 14, 2024 and sell it today you would lose (128.00) from holding Canadian Solar or give up 9.37% of portfolio value over 90 days.

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

Monolithic Power Systems  vs.  Canadian Solar

Monolithic Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monolithic Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Canadian Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Canadian Solar is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Monolithic Power and Canadian Solar

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

The idea behind Monolithic Power Systems and Canadian Solar 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.