Correlation Between GlobalWafers and MPI

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

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

Diversification Opportunities for GlobalWafers and MPI

-0.69

Correlation Coefficient

GlobalWafers  MPI

Excellent diversification

The 3 months correlation between GlobalWafers and MPI is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding GlobalWafers Co and MPI Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPI Corporation and GlobalWafers 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 GlobalWafers Co are associated (or correlated) with MPI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPI Corporation has no effect on the direction of GlobalWafers i.e., GlobalWafers and MPI go up and down completely randomly.

Pair Corralation between GlobalWafers and MPI

Assuming the 90 days trading horizon GlobalWafers Co is expected to under-perform the MPI. But the stock apears to be less risky and, when comparing its historical volatility, GlobalWafers Co is 1.75 times less risky than MPI. The stock trades about -0.14 of its potential returns per unit of risk. The MPI Corporation is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  86,000  in MPI Corporation on October 23, 2024 and sell it today you would earn a total of  4,900  from holding MPI Corporation or generate 5.7% return on investment over 90 days.

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

GlobalWafers Co  vs.  MPI Corp.

GlobalWafers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalWafers Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

MPI Corporation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MPI Corporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, MPI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GlobalWafers and MPI

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

The idea behind GlobalWafers Co and MPI Corporation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.