Correlation Between Micron Technology and Brookside Energy

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

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

Diversification Opportunities for Micron Technology and Brookside Energy

0.01

Correlation Coefficient

Micron Technology  Brookside Energy

Significant diversification

The 3 months correlation between Micron and Brookside is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Brookside Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookside Energy 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 Brookside Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookside Energy has no effect on the direction of Micron Technology i.e., Micron Technology and Brookside Energy go up and down completely randomly.

Pair Corralation between Micron Technology and Brookside Energy

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Brookside Energy. But the stock apears to be less risky and, when comparing its historical volatility, Micron Technology is 1.41 times less risky than Brookside Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Brookside Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Brookside Energy on September 22, 2024 and sell it today you would lose (3.00) from holding Brookside Energy or give up 8.33% 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.  Brookside Energy

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.

Brookside Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookside Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Brookside Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and Brookside Energy

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

The idea behind Micron Technology and Brookside Energy 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.