Correlation Between Monolithic Power and Cirrus Logic

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

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

Diversification Opportunities for Monolithic Power and Cirrus Logic

0.54

Correlation Coefficient

Monolithic Power  Cirrus Logic

Very weak diversification

The 3 months correlation between Monolithic and Cirrus is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Cirrus Logic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cirrus Logic and Monolithic Power 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 Monolithic Power Systems are associated (or correlated) with Cirrus Logic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cirrus Logic has no effect on the direction of Monolithic Power i.e., Monolithic Power and Cirrus Logic go up and down completely randomly.

Pair Corralation between Monolithic Power and Cirrus Logic

Given the investment horizon of 90 days Monolithic Power is expected to generate 1.81 times less return on investment than Cirrus Logic. In addition to that, Monolithic Power is 1.6 times more volatile than Cirrus Logic. It trades about 0.0 of its total potential returns per unit of risk. Cirrus Logic is currently generating about 0.01 per unit of volatility. If you would invest  10,019  in Cirrus Logic on December 30, 2024 and sell it today you would lose (68.00) from holding Cirrus Logic or give up 0.68% of portfolio value over 90 days.

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

Monolithic Power Systems  vs.  Cirrus Logic

Monolithic Power Systems

Risk-Adjusted Performance

Very Weak

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

Cirrus Logic

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Monolithic Power and Cirrus Logic

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

The idea behind Monolithic Power Systems and Cirrus Logic 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.