Correlation Between EMCORE and MagnaChip Semiconductor

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

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

Diversification Opportunities for EMCORE and MagnaChip Semiconductor

-0.63

Correlation Coefficient

EMCORE  MagnaChip Semiconductor

Excellent diversification

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

Pair Corralation between EMCORE and MagnaChip Semiconductor

Given the investment horizon of 90 days EMCORE is expected to generate 3.06 times more return on investment than MagnaChip Semiconductor. However, EMCORE is 3.06 times more volatile than MagnaChip Semiconductor. It trades about 0.0 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.07 per unit of risk. If you would invest  1,140  in EMCORE on October 7, 2024 and sell it today you would lose (842.00) from holding EMCORE or give up 73.86% of portfolio value over 90 days.

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

EMCORE  vs.  MagnaChip Semiconductor

EMCORE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with EMCORE and MagnaChip Semiconductor

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

The idea behind EMCORE and MagnaChip Semiconductor 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.