Correlation Between Micron Technology and Small Cap

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

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

Diversification Opportunities for Micron Technology and Small Cap

0.04

Correlation Coefficient

Micron Technology  Small Cap

Significant diversification

The 3 months correlation between Micron and Small is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Micron Technology i.e., Micron Technology and Small Cap go up and down completely randomly.

Pair Corralation between Micron Technology and Small Cap

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Small Cap. In addition to that, Micron Technology is 4.31 times more volatile than Small Cap Growth. It trades about -0.14 of its total potential returns per unit of risk. Small Cap Growth is currently generating about -0.27 per unit of volatility. If you would invest  2,439  in Small Cap Growth on September 25, 2024 and sell it today you would lose (148.00) from holding Small Cap Growth or give up 6.07% of portfolio value over 90 days.

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

Micron Technology  vs.  Small Cap Growth

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.

Small Cap Growth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Micron Technology and Small Cap

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

The idea behind Micron Technology and Small Cap Growth 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.