Correlation Between Micron Technology and China Steel

Can any of the company-specific risk be diversified away by investing in both Micron Technology and China Steel 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 Micron Technology and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Micron Technology and China Steel Structure, you can compare the effects of market volatilities on Micron Technology and China Steel 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 Micron Technology with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and China Steel.

Diversification Opportunities for Micron Technology and China Steel

0.37

Correlation Coefficient

Micron Technology  China Steel

Weak diversification

The 3 months correlation between Micron and China is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and China Steel Structure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Structure and Micron Technology 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 Micron Technology are associated (or correlated) with China Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Structure has no effect on the direction of Micron Technology i.e., Micron Technology and China Steel go up and down completely randomly.

Pair Corralation between Micron Technology and China Steel

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the China Steel. In addition to that, Micron Technology is 6.88 times more volatile than China Steel Structure. It trades about -0.14 of its total potential returns per unit of risk. China Steel Structure is currently generating about -0.5 per unit of volatility. If you would invest  5,420  in China Steel Structure on September 25, 2024 and sell it today you would lose (390.00) from holding China Steel Structure or give up 7.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Micron Technology  vs.  China Steel Structure

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

China Steel Structure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Structure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Micron Technology and China Steel

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

The idea behind Micron Technology and China Steel Structure 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.