Correlation Between Monolithic Power and Semtech

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

Diversification Opportunities for Monolithic Power and Semtech

0.05

Correlation Coefficient

Monolithic Power  Semtech

Significant diversification

The 3 months correlation between Monolithic and Semtech is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and Semtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semtech 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 Semtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semtech has no effect on the direction of Monolithic Power i.e., Monolithic Power and Semtech go up and down completely randomly.

Pair Corralation between Monolithic Power and Semtech

Given the investment horizon of 90 days Monolithic Power Systems is expected to under-perform the Semtech. But the stock apears to be less risky and, when comparing its historical volatility, Monolithic Power Systems is 1.57 times less risky than Semtech. The stock trades about -0.07 of its potential returns per unit of risk. The Semtech is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,208  in Semtech on December 30, 2024 and sell it today you would lose (703.00) from holding Semtech or give up 16.71% of portfolio value over 90 days.

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

Monolithic Power Systems  vs.  Semtech

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.

Semtech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Semtech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Monolithic Power and Semtech

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

The idea behind Monolithic Power Systems and Semtech 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.