Correlation Between MaxLinear and Allegro Microsystems

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

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

Diversification Opportunities for MaxLinear and Allegro Microsystems

0.27

Correlation Coefficient

MaxLinear  Allegro Microsystems

Modest diversification

The 3 months correlation between MaxLinear and Allegro is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding MaxLinear and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems and MaxLinear 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 MaxLinear are associated (or correlated) with Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of MaxLinear i.e., MaxLinear and Allegro Microsystems go up and down completely randomly.

Pair Corralation between MaxLinear and Allegro Microsystems

Considering the 90-day investment horizon MaxLinear is expected to generate 1.51 times more return on investment than Allegro Microsystems. However, MaxLinear is 1.51 times more volatile than Allegro Microsystems. It trades about 0.14 of its potential returns per unit of risk. Allegro Microsystems is currently generating about -0.01 per unit of risk. If you would invest  1,448  in MaxLinear on September 30, 2024 and sell it today you would earn a total of  602.00  from holding MaxLinear or generate 41.57% return on investment over 90 days.

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

MaxLinear  vs.  Allegro Microsystems

MaxLinear

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MaxLinear are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, MaxLinear disclosed solid returns over the last few months and may actually be approaching a breakup point.

Allegro Microsystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegro Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Allegro Microsystems is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MaxLinear and Allegro Microsystems

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

The idea behind MaxLinear and Allegro Microsystems 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.