Correlation Between Masco and Micron Technology

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

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

Diversification Opportunities for Masco and Micron Technology

-0.48

Correlation Coefficient

Masco  Micron Technology

Very good diversification

The 3 months correlation between Masco and Micron is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology and Masco 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 Masco 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 Masco i.e., Masco and Micron Technology go up and down completely randomly.

Pair Corralation between Masco and Micron Technology

Assuming the 90 days trading horizon Masco is expected to generate 0.02 times more return on investment than Micron Technology. However, Masco is 53.83 times less risky than Micron Technology. It trades about 0.13 of its potential returns per unit of risk. Micron Technology is currently generating about -0.01 per unit of risk. If you would invest  114,242  in Masco on October 7, 2024 and sell it today you would earn a total of  584.00  from holding Masco or generate 0.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Masco  vs.  Micron Technology

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Micron Technology

Risk-Adjusted Performance

0 of 100

Very 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 fairly strong primary indicators, Micron Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Masco and Micron Technology

The main advantage of trading using opposite Masco and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Masco 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 Masco 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.