Correlation Between Micron Technology and Vale SA

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

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

Diversification Opportunities for Micron Technology and Vale SA

0.22

Correlation Coefficient

Micron Technology  Vale SA

Modest diversification

The 3 months correlation between Micron and Vale is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Micron Technology 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 Micron Technology are associated (or correlated) with Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Micron Technology i.e., Micron Technology and Vale SA go up and down completely randomly.

Pair Corralation between Micron Technology and Vale SA

Assuming the 90 days horizon Micron Technology is expected to generate 1.57 times more return on investment than Vale SA. However, Micron Technology is 1.57 times more volatile than Vale SA. It trades about 0.11 of its potential returns per unit of risk. Vale SA is currently generating about -0.01 per unit of risk. If you would invest  169,822  in Micron Technology on September 16, 2024 and sell it today you would earn a total of  36,017  from holding Micron Technology or generate 21.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Micron Technology  vs.  Vale SA

Micron Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Micron Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Vale SA is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Micron Technology and Vale SA

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

The idea behind Micron Technology and Vale SA 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.