Correlation Between United States and Micron Technology

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

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

Diversification Opportunities for United States and Micron Technology

0.63

Correlation Coefficient

United States  Micron Technology

Poor diversification

The 3 months correlation between United and Micron is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and United States 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 United States Steel 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 United States i.e., United States and Micron Technology go up and down completely randomly.

Pair Corralation between United States and Micron Technology

Given the investment horizon of 90 days United States Steel is expected to generate 1.44 times more return on investment than Micron Technology. However, United States is 1.44 times more volatile than Micron Technology. It trades about 0.02 of its potential returns per unit of risk. Micron Technology is currently generating about -0.01 per unit of risk. If you would invest  76,685  in United States Steel on September 4, 2024 and sell it today you would earn a total of  315.00  from holding United States Steel or generate 0.41% return on investment over 90 days.

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

United States Steel  vs.  Micron Technology

United States Steel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

Micron Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Micron Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Micron Technology

The main advantage of trading using opposite United States and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.