Correlation Between Globalfoundries and NeoMagic

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

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

Diversification Opportunities for Globalfoundries and NeoMagic

-0.5

Correlation Coefficient

Globalfoundries  NeoMagic

Very good diversification

The 3 months correlation between Globalfoundries and NeoMagic is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Globalfoundries and NeoMagic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NeoMagic and Globalfoundries 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 Globalfoundries are associated (or correlated) with NeoMagic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NeoMagic has no effect on the direction of Globalfoundries i.e., Globalfoundries and NeoMagic go up and down completely randomly.

Pair Corralation between Globalfoundries and NeoMagic

Considering the 90-day investment horizon Globalfoundries is expected to under-perform the NeoMagic. But the stock apears to be less risky and, when comparing its historical volatility, Globalfoundries is 5.69 times less risky than NeoMagic. The stock trades about -0.01 of its potential returns per unit of risk. The NeoMagic is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.05  in NeoMagic on October 5, 2024 and sell it today you would lose (0.33) from holding NeoMagic or give up 31.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	26.32%
Values	Daily Returns

Globalfoundries  vs.  NeoMagic

Globalfoundries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Globalfoundries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Globalfoundries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NeoMagic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NeoMagic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, NeoMagic is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Globalfoundries and NeoMagic

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

The idea behind Globalfoundries and NeoMagic 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.