Correlation Between Monolithic Power and Diodes Incorporated

Can any of the company-specific risk be diversified away by investing in both Monolithic Power and Diodes Incorporated 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 Diodes Incorporated 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 Diodes Incorporated, you can compare the effects of market volatilities on Monolithic Power and Diodes Incorporated 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 Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monolithic Power and Diodes Incorporated.

Diversification Opportunities for Monolithic Power and Diodes Incorporated

0.31

Correlation Coefficient

Monolithic Power  Diodes Incorporated

Weak diversification

The 3 months correlation between Monolithic and Diodes is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated 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 Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of Monolithic Power i.e., Monolithic Power and Diodes Incorporated go up and down completely randomly.

Pair Corralation between Monolithic Power and Diodes Incorporated

Given the investment horizon of 90 days Monolithic Power Systems is expected to generate 1.14 times more return on investment than Diodes Incorporated. However, Monolithic Power is 1.14 times more volatile than Diodes Incorporated. It trades about 0.07 of its potential returns per unit of risk. Diodes Incorporated is currently generating about -0.08 per unit of risk. If you would invest  60,086  in Monolithic Power Systems on September 25, 2024 and sell it today you would earn a total of  1,872  from holding Monolithic Power Systems or generate 3.12% return on investment over 90 days.

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

Monolithic Power Systems  vs.  Diodes Incorporated

Monolithic Power Systems

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Diodes Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Diodes Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monolithic Power and Diodes Incorporated

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

The idea behind Monolithic Power Systems and Diodes Incorporated 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.