Correlation Between Micron Technology and Central Industrial

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

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

Diversification Opportunities for Micron Technology and Central Industrial

0.08

Correlation Coefficient

Micron Technology  Central Industrial

Significant diversification

The 3 months correlation between Micron and Central is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Central Industrial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Industrial Corp 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 Central Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Industrial Corp has no effect on the direction of Micron Technology i.e., Micron Technology and Central Industrial go up and down completely randomly.

Pair Corralation between Micron Technology and Central Industrial

Allowing for the 90-day total investment horizon Micron Technology is expected to generate 4.29 times more return on investment than Central Industrial. However, Micron Technology is 4.29 times more volatile than Central Industrial Corp. It trades about 0.1 of its potential returns per unit of risk. Central Industrial Corp is currently generating about 0.11 per unit of risk. If you would invest  8,708  in Micron Technology on September 15, 2024 and sell it today you would earn a total of  1,542  from holding Micron Technology or generate 17.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Micron Technology  vs.  Central Industrial Corp

Micron Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Central Industrial Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Industrial Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Central Industrial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Micron Technology and Central Industrial

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

The idea behind Micron Technology and Central Industrial Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.