Correlation Between Micron Technology and Federal Home

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

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

Diversification Opportunities for Micron Technology and Federal Home

-0.56

Correlation Coefficient

Micron Technology  Federal Home

Excellent diversification

The 3 months correlation between Micron and Federal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Micron Technology i.e., Micron Technology and Federal Home go up and down completely randomly.

Pair Corralation between Micron Technology and Federal Home

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Federal Home. But the stock apears to be less risky and, when comparing its historical volatility, Micron Technology is 2.12 times less risky than Federal Home. The stock trades about -0.1 of its potential returns per unit of risk. The Federal Home Loan is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Federal Home Loan on October 7, 2024 and sell it today you would earn a total of  163.00  from holding Federal Home Loan or generate 60.37% return on investment over 90 days.

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

Micron Technology  vs.  Federal Home Loan

Micron Technology

Risk-Adjusted Performance

0 of 100

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.

Federal Home Loan

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Federal Home exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and Federal Home

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

The idea behind Micron Technology and Federal Home Loan 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.