Correlation Between Micron Technology and First Trust

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

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

Diversification Opportunities for Micron Technology and First Trust

0.33

Correlation Coefficient

Micron Technology  First Trust

Weak diversification

The 3 months correlation between Micron and First is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Exchange has no effect on the direction of Micron Technology i.e., Micron Technology and First Trust go up and down completely randomly.

Pair Corralation between Micron Technology and First Trust

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the First Trust. In addition to that, Micron Technology is 1.58 times more volatile than First Trust Exchange Traded. It trades about -0.12 of its total potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.22 per unit of volatility. If you would invest  484,250  in First Trust Exchange Traded on September 12, 2024 and sell it today you would earn a total of  33,135  from holding First Trust Exchange Traded or generate 6.84% return on investment over 90 days.

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

Micron Technology  vs.  First Trust Exchange Traded

Micron Technology

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Exchange

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and First Trust

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

The idea behind Micron Technology and First Trust Exchange Traded 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.