Correlation Between Raytheon Technologies and Micron Technology

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

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

Diversification Opportunities for Raytheon Technologies and Micron Technology

0.73

Correlation Coefficient

Raytheon Technologies  Micron Technology

Poor diversification

The 3 months correlation between Raytheon and Micron is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and Micron Technology go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Micron Technology

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 0.45 times more return on investment than Micron Technology. However, Raytheon Technologies is 2.24 times less risky than Micron Technology. It trades about 0.18 of its potential returns per unit of risk. Micron Technology is currently generating about 0.07 per unit of risk. If you would invest  6,638  in Raytheon Technologies on September 4, 2024 and sell it today you would earn a total of  5,352  from holding Raytheon Technologies or generate 80.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.18%
Values	Daily Returns

Raytheon Technologies  vs.  Micron Technology

Raytheon Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Raytheon Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Micron Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Micron Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Raytheon Technologies and Micron Technology

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

The idea behind Raytheon Technologies and Micron Technology 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.