Correlation Between Financial Street and Montage Technology

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

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

Diversification Opportunities for Financial Street and Montage Technology

0.63

Correlation Coefficient

Financial Street  Montage Technology

Poor diversification

The 3 months correlation between Financial and Montage is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Financial Street Holdings and Montage Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montage Technology and Financial Street 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 Financial Street Holdings are associated (or correlated) with Montage Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montage Technology has no effect on the direction of Financial Street i.e., Financial Street and Montage Technology go up and down completely randomly.

Pair Corralation between Financial Street and Montage Technology

Assuming the 90 days trading horizon Financial Street Holdings is expected to under-perform the Montage Technology. But the stock apears to be less risky and, when comparing its historical volatility, Financial Street Holdings is 1.16 times less risky than Montage Technology. The stock trades about -0.02 of its potential returns per unit of risk. The Montage Technology Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,351  in Montage Technology Co on September 29, 2024 and sell it today you would earn a total of  1,197  from holding Montage Technology Co or generate 18.85% return on investment over 90 days.

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

Financial Street Holdings  vs.  Montage Technology Co

Financial Street Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Street Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Financial Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Montage Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Montage Technology Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Montage Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial Street and Montage Technology

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

The idea behind Financial Street Holdings and Montage Technology Co 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.