Correlation Between Micron Technology and NEXTDC

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

By analyzing existing cross correlation between Micron Technology and NEXTDC LTD, you can compare the effects of market volatilities on Micron Technology and NEXTDC 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 NEXTDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and NEXTDC.

Diversification Opportunities for Micron Technology and NEXTDC

0.27

Correlation Coefficient

Micron Technology  NEXTDC

Modest diversification

The 3 months correlation between Micron and NEXTDC is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Micron Technology i.e., Micron Technology and NEXTDC go up and down completely randomly.

Pair Corralation between Micron Technology and NEXTDC

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the NEXTDC. In addition to that, Micron Technology is 1.41 times more volatile than NEXTDC LTD. It trades about -0.08 of its total potential returns per unit of risk. NEXTDC LTD is currently generating about -0.06 per unit of volatility. If you would invest  1,130  in NEXTDC LTD on September 24, 2024 and sell it today you would lose (245.00) from holding NEXTDC LTD or give up 21.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.45%
Values	Daily Returns

Micron Technology  vs.  NEXTDC LTD

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Micron Technology and NEXTDC

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

The idea behind Micron Technology and NEXTDC LTD 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.