Correlation Between Micron Technology and Red Light

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

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

Diversification Opportunities for Micron Technology and Red Light

-0.02

Correlation Coefficient

Micron Technology  Red Light

Good diversification

The 3 months correlation between Micron and Red is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Red Light Holland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Light Holland 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 Red Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Light Holland has no effect on the direction of Micron Technology i.e., Micron Technology and Red Light go up and down completely randomly.

Pair Corralation between Micron Technology and Red Light

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Red Light. But the stock apears to be less risky and, when comparing its historical volatility, Micron Technology is 2.44 times less risky than Red Light. The stock trades about -0.03 of its potential returns per unit of risk. The Red Light Holland is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2.40  in Red Light Holland on September 19, 2024 and sell it today you would earn a total of  0.30  from holding Red Light Holland or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Micron Technology  vs.  Red Light Holland

Micron Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Red Light Holland

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Red Light Holland are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Red Light reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and Red Light

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

The idea behind Micron Technology and Red Light Holland 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.