Correlation Between First Solar and MagnaChip Semiconductor

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

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

Diversification Opportunities for First Solar and MagnaChip Semiconductor

0.62

Correlation Coefficient

First Solar  MagnaChip Semiconductor

Poor diversification

The 3 months correlation between First and MagnaChip is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding First Solar and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor and First Solar 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 First Solar 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 First Solar i.e., First Solar and MagnaChip Semiconductor go up and down completely randomly.

Pair Corralation between First Solar and MagnaChip Semiconductor

Given the investment horizon of 90 days First Solar is expected to generate 1.41 times more return on investment than MagnaChip Semiconductor. However, First Solar is 1.41 times more volatile than MagnaChip Semiconductor. It trades about 0.03 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.07 per unit of risk. If you would invest  16,501  in First Solar on October 10, 2024 and sell it today you would earn a total of  3,272  from holding First Solar or generate 19.83% return on investment over 90 days.

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

First Solar  vs.  MagnaChip Semiconductor

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, First Solar is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 First Solar and MagnaChip Semiconductor

The main advantage of trading using opposite First Solar and MagnaChip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Solar 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 First Solar 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.