Correlation Between InterContinental and Micron Technology

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

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

Diversification Opportunities for InterContinental and Micron Technology

-0.51

Correlation Coefficient

InterContinental  Micron Technology

Excellent diversification

The 3 months correlation between InterContinental and Micron is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and Micron Technology go up and down completely randomly.

Pair Corralation between InterContinental and Micron Technology

Assuming the 90 days trading horizon InterContinental is expected to generate 1.25 times less return on investment than Micron Technology. But when comparing it to its historical volatility, InterContinental Hotels Group is 2.4 times less risky than Micron Technology. It trades about 0.1 of its potential returns per unit of risk. Micron Technology is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,749  in Micron Technology on October 11, 2024 and sell it today you would earn a total of  4,291  from holding Micron Technology or generate 74.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

InterContinental Hotels Group  vs.  Micron Technology

InterContinental Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Micron Technology

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with InterContinental and Micron Technology

The main advantage of trading using opposite InterContinental and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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.

The idea behind InterContinental Hotels Group and Micron Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.