Correlation Between Micron Technology and Federated Bond

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

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

Diversification Opportunities for Micron Technology and Federated Bond

0.34

Correlation Coefficient

Micron Technology  Federated Bond

Weak diversification

The 3 months correlation between Micron and Federated is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Federated Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Bond 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 Federated Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Bond has no effect on the direction of Micron Technology i.e., Micron Technology and Federated Bond go up and down completely randomly.

Pair Corralation between Micron Technology and Federated Bond

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Federated Bond. In addition to that, Micron Technology is 11.13 times more volatile than Federated Bond Fund. It trades about -0.06 of its total potential returns per unit of risk. Federated Bond Fund is currently generating about -0.16 per unit of volatility. If you would invest  855.00  in Federated Bond Fund on September 30, 2024 and sell it today you would lose (26.00) from holding Federated Bond Fund or give up 3.04% of portfolio value over 90 days.

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

Micron Technology  vs.  Federated Bond Fund

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Federated Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Federated Bond 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 Federated Bond

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

The idea behind Micron Technology and Federated Bond Fund 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.