Correlation Between Monolithic Power and POET Technologies

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

Diversification Opportunities for Monolithic Power and POET Technologies

0.21

Correlation Coefficient

Monolithic Power  POET Technologies

Modest diversification

The 3 months correlation between Monolithic and POET is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and POET Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POET Technologies 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 POET Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POET Technologies has no effect on the direction of Monolithic Power i.e., Monolithic Power and POET Technologies go up and down completely randomly.

Pair Corralation between Monolithic Power and POET Technologies

Given the investment horizon of 90 days Monolithic Power Systems is expected to generate 0.63 times more return on investment than POET Technologies. However, Monolithic Power Systems is 1.59 times less risky than POET Technologies. It trades about 0.03 of its potential returns per unit of risk. POET Technologies is currently generating about -0.12 per unit of risk. If you would invest  61,855  in Monolithic Power Systems on December 26, 2024 and sell it today you would earn a total of  1,442  from holding Monolithic Power Systems or generate 2.33% 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.  POET Technologies

Monolithic Power Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Monolithic Power Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Monolithic Power may actually be approaching a critical reversion point that can send shares even higher in April 2025.

POET Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days POET Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Monolithic Power and POET Technologies

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

The idea behind Monolithic Power Systems and POET Technologies 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.