Correlation Between Diodes Incorporated and Allegro Microsystems

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

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

Diversification Opportunities for Diodes Incorporated and Allegro Microsystems

-0.66

Correlation Coefficient

Diodes Incorporated  Allegro Microsystems

Excellent diversification

The 3 months correlation between Diodes and Allegro is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Diodes Incorporated and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems and Diodes Incorporated 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 Diodes Incorporated are associated (or correlated) with Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of Diodes Incorporated i.e., Diodes Incorporated and Allegro Microsystems go up and down completely randomly.

Pair Corralation between Diodes Incorporated and Allegro Microsystems

Given the investment horizon of 90 days Diodes Incorporated is expected to under-perform the Allegro Microsystems. But the stock apears to be less risky and, when comparing its historical volatility, Diodes Incorporated is 1.55 times less risky than Allegro Microsystems. The stock trades about -0.17 of its potential returns per unit of risk. The Allegro Microsystems is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,158  in Allegro Microsystems on December 29, 2024 and sell it today you would earn a total of  328.00  from holding Allegro Microsystems or generate 15.2% return on investment over 90 days.

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

Diodes Incorporated  vs.  Allegro Microsystems

Diodes Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Allegro Microsystems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allegro Microsystems are ranked lower than 6 (%) 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.

Pair Trading with Diodes Incorporated and Allegro Microsystems

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

The idea behind Diodes Incorporated and Allegro Microsystems 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.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.