Correlation Between Micron Technology and Prime Oil

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

By analyzing existing cross correlation between Micron Technology and Prime Oil Chemical, you can compare the effects of market volatilities on Micron Technology and Prime Oil 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 Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micron Technology and Prime Oil.

Diversification Opportunities for Micron Technology and Prime Oil

0.15

Correlation Coefficient

Micron Technology  Prime Oil

Average diversification

The 3 months correlation between Micron and Prime is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical 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 Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Micron Technology i.e., Micron Technology and Prime Oil go up and down completely randomly.

Pair Corralation between Micron Technology and Prime Oil

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Prime Oil. In addition to that, Micron Technology is 7.68 times more volatile than Prime Oil Chemical. It trades about -0.01 of its total potential returns per unit of risk. Prime Oil Chemical is currently generating about 0.09 per unit of volatility. If you would invest  1,785  in Prime Oil Chemical on December 4, 2024 and sell it today you would earn a total of  15.00  from holding Prime Oil Chemical or generate 0.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Micron Technology  vs.  Prime Oil Chemical

Micron Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Prime Oil Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Micron Technology and Prime Oil

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

The idea behind Micron Technology and Prime Oil Chemical 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.