Correlation Between Allegro Microsystems and First Solar

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

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

Diversification Opportunities for Allegro Microsystems and First Solar

-0.12

Correlation Coefficient

Allegro Microsystems  First Solar

Good diversification

The 3 months correlation between Allegro and First is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Allegro Microsystems and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar and Allegro Microsystems 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 Allegro Microsystems are associated (or correlated) with First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Allegro Microsystems i.e., Allegro Microsystems and First Solar go up and down completely randomly.

Pair Corralation between Allegro Microsystems and First Solar

Given the investment horizon of 90 days Allegro Microsystems is expected to under-perform the First Solar. But the stock apears to be less risky and, when comparing its historical volatility, Allegro Microsystems is 1.16 times less risky than First Solar. The stock trades about -0.02 of its potential returns per unit of risk. The First Solar is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  16,867  in First Solar on October 24, 2024 and sell it today you would earn a total of  324.00  from holding First Solar or generate 1.92% return on investment over 90 days.

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

Allegro Microsystems  vs.  First Solar

Allegro Microsystems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allegro Microsystems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Allegro Microsystems displayed solid returns over the last few months and may actually be approaching a breakup point.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Allegro Microsystems and First Solar

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

The idea behind Allegro Microsystems and First Solar 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.