Correlation Between MagnaChip Semiconductor and Advanced Energy

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

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

Diversification Opportunities for MagnaChip Semiconductor and Advanced Energy

-0.53

Correlation Coefficient

MagnaChip Semiconductor  Advanced Energy

Excellent diversification

The 3 months correlation between MagnaChip and Advanced is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu and MagnaChip Semiconductor 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 MagnaChip Semiconductor are associated (or correlated) with Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of MagnaChip Semiconductor i.e., MagnaChip Semiconductor and Advanced Energy go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and Advanced Energy

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the Advanced Energy. In addition to that, MagnaChip Semiconductor is 1.5 times more volatile than Advanced Energy Industries. It trades about -0.01 of its total potential returns per unit of risk. Advanced Energy Industries is currently generating about 0.14 per unit of volatility. If you would invest  9,875  in Advanced Energy Industries on September 3, 2024 and sell it today you would earn a total of  1,629  from holding Advanced Energy Industries or generate 16.5% return on investment over 90 days.

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

MagnaChip Semiconductor  vs.  Advanced Energy Industries

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, MagnaChip Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Advanced Energy Indu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MagnaChip Semiconductor and Advanced Energy

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

The idea behind MagnaChip Semiconductor and Advanced Energy Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.