Correlation Between Best Buy and Micron Technology
Can any of the company-specific risk be diversified away by investing in both Best Buy 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 Best Buy and Micron Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and Micron Technology, you can compare the effects of market volatilities on Best Buy 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 Best Buy with a short position of Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Micron Technology.
Diversification Opportunities for Best Buy and Micron Technology
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Best and Micron is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and Micron Technology go up and down completely randomly.
Pair Corralation between Best Buy and Micron Technology
Assuming the 90 days trading horizon Best Buy Co is expected to generate 0.23 times more return on investment than Micron Technology. However, Best Buy Co is 4.43 times less risky than Micron Technology. It trades about -0.04 of its potential returns per unit of risk. Micron Technology is currently generating about -0.03 per unit of risk. If you would invest 184,937 in Best Buy Co on December 4, 2024 and sell it today you would lose (4,937) from holding Best Buy Co or give up 2.67% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Best Buy Co vs. Micron Technology
Performance |
Timeline |
Best Buy |
Micron Technology |
Best Buy and Micron Technology Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Best Buy and Micron Technology
The main advantage of trading using opposite Best Buy and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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.Best Buy vs. Air Transport Services | Best Buy vs. Costco Wholesale | Best Buy vs. New Oriental Education | Best Buy vs. First Majestic Silver |
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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