Correlation Between Monolithic Power and Lattice Semiconductor

Can any of the company-specific risk be diversified away by investing in both Monolithic Power and Lattice Semiconductor 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 Lattice Semiconductor 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 Lattice Semiconductor, you can compare the effects of market volatilities on Monolithic Power and Lattice Semiconductor 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 Lattice Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monolithic Power and Lattice Semiconductor.

Diversification Opportunities for Monolithic Power and Lattice Semiconductor

-0.18

Correlation Coefficient

Monolithic Power  Lattice Semiconductor

Good diversification

The 3 months correlation between Monolithic and Lattice is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Lattice Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lattice Semiconductor 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 Lattice Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lattice Semiconductor has no effect on the direction of Monolithic Power i.e., Monolithic Power and Lattice Semiconductor go up and down completely randomly.

Pair Corralation between Monolithic Power and Lattice Semiconductor

Given the investment horizon of 90 days Monolithic Power Systems is expected to under-perform the Lattice Semiconductor. In addition to that, Monolithic Power is 1.23 times more volatile than Lattice Semiconductor. It trades about -0.14 of its total potential returns per unit of risk. Lattice Semiconductor is currently generating about 0.16 per unit of volatility. If you would invest  4,305  in Lattice Semiconductor on September 2, 2024 and sell it today you would earn a total of  1,370  from holding Lattice Semiconductor or generate 31.82% return on investment over 90 days.

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

Monolithic Power Systems  vs.  Lattice Semiconductor

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 inconsistent 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.

Lattice Semiconductor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lattice Semiconductor are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Lattice Semiconductor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monolithic Power and Lattice Semiconductor

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

The idea behind Monolithic Power Systems and Lattice Semiconductor 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.