Correlation Between Microvision and Coherent

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

By analyzing existing cross correlation between Microvision and Coherent, you can compare the effects of market volatilities on Microvision and Coherent 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 Microvision with a short position of Coherent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microvision and Coherent.

Diversification Opportunities for Microvision and Coherent

0.1

Correlation Coefficient

Microvision  Coherent

Average diversification

The 3 months correlation between Microvision and Coherent is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microvision and Coherent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coherent and Microvision 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 Microvision are associated (or correlated) with Coherent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coherent has no effect on the direction of Microvision i.e., Microvision and Coherent go up and down completely randomly.

Pair Corralation between Microvision and Coherent

Given the investment horizon of 90 days Microvision is expected to under-perform the Coherent. But the stock apears to be less risky and, when comparing its historical volatility, Microvision is 1.03 times less risky than Coherent. The stock trades about -0.16 of its potential returns per unit of risk. The Coherent is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  9,091  in Coherent on September 5, 2024 and sell it today you would earn a total of  2,111  from holding Coherent or generate 23.22% return on investment over 90 days.

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

Microvision  vs.  Coherent

Microvision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microvision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Microvision is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Coherent

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coherent are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Coherent reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microvision and Coherent

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

The idea behind Microvision and Coherent 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.