Correlation Between Arm Holdings and Micron Technology

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

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

Diversification Opportunities for Arm Holdings and Micron Technology

0.63

Correlation Coefficient

Arm Holdings  Micron Technology

Poor diversification

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

Pair Corralation between Arm Holdings and Micron Technology

Considering the 90-day investment horizon Arm Holdings plc is expected to generate 1.83 times more return on investment than Micron Technology. However, Arm Holdings is 1.83 times more volatile than Micron Technology. It trades about 0.07 of its potential returns per unit of risk. Micron Technology is currently generating about 0.06 per unit of risk. If you would invest  6,359  in Arm Holdings plc on September 24, 2024 and sell it today you would earn a total of  6,856  from holding Arm Holdings plc or generate 107.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	64.79%
Values	Daily Returns

Arm Holdings plc  vs.  Micron Technology

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Arm Holdings and Micron Technology

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

The idea behind Arm Holdings plc and Micron Technology 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.