Correlation Between Allegro Microsystems and Monolithic Power

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

By analyzing existing cross correlation between Allegro Microsystems and Monolithic Power Systems, you can compare the effects of market volatilities on Allegro Microsystems and Monolithic Power 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 Monolithic Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allegro Microsystems and Monolithic Power.

Diversification Opportunities for Allegro Microsystems and Monolithic Power

0.16

Correlation Coefficient

Allegro Microsystems  Monolithic Power

Average diversification

The 3 months correlation between Allegro and Monolithic is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Allegro Microsystems and Monolithic Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monolithic Power Systems 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 Monolithic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monolithic Power Systems has no effect on the direction of Allegro Microsystems i.e., Allegro Microsystems and Monolithic Power go up and down completely randomly.

Pair Corralation between Allegro Microsystems and Monolithic Power

Given the investment horizon of 90 days Allegro Microsystems is expected to generate 1.03 times more return on investment than Monolithic Power. However, Allegro Microsystems is 1.03 times more volatile than Monolithic Power Systems. It trades about 0.1 of its potential returns per unit of risk. Monolithic Power Systems is currently generating about 0.01 per unit of risk. If you would invest  2,229  in Allegro Microsystems on December 27, 2024 and sell it today you would earn a total of  456.00  from holding Allegro Microsystems or generate 20.46% return on investment over 90 days.

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

Allegro Microsystems  vs.  Monolithic Power Systems

Allegro Microsystems

Risk-Adjusted Performance

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.

Monolithic Power Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monolithic Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Monolithic Power is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Allegro Microsystems and Monolithic Power

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

The idea behind Allegro Microsystems and Monolithic Power Systems 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.