Correlation Between Allegro Microsystems and Sitime

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

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

Diversification Opportunities for Allegro Microsystems and Sitime

-0.16

Correlation Coefficient

Allegro Microsystems  Sitime

Good diversification

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

Pair Corralation between Allegro Microsystems and Sitime

Given the investment horizon of 90 days Allegro Microsystems is expected to under-perform the Sitime. But the stock apears to be less risky and, when comparing its historical volatility, Allegro Microsystems is 1.18 times less risky than Sitime. The stock trades about -0.03 of its potential returns per unit of risk. The Sitime is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  11,860  in Sitime on September 19, 2024 and sell it today you would earn a total of  13,137  from holding Sitime or generate 110.77% 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.  Sitime

Allegro Microsystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegro Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Allegro Microsystems is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Sitime

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sitime are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Sitime displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allegro Microsystems and Sitime

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

The idea behind Allegro Microsystems and Sitime 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.