Correlation Between Micron Technology and CAC Consumer

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

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

Diversification Opportunities for Micron Technology and CAC Consumer

0.05

Correlation Coefficient

Micron Technology  CAC Consumer

Significant diversification

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

Pair Corralation between Micron Technology and CAC Consumer

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the CAC Consumer. In addition to that, Micron Technology is 2.58 times more volatile than CAC Consumer Goods. It trades about -0.07 of its total potential returns per unit of risk. CAC Consumer Goods is currently generating about -0.1 per unit of volatility. If you would invest  539,969  in CAC Consumer Goods on September 27, 2024 and sell it today you would lose (44,456) from holding CAC Consumer Goods or give up 8.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Micron Technology  vs.  CAC Consumer Goods

Pair Trading with Micron Technology and CAC Consumer

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

The idea behind Micron Technology and CAC Consumer Goods 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.