Correlation Between Micron Technology and Small Cap

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

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

Diversification Opportunities for Micron Technology and Small Cap

0.08

Correlation Coefficient

Micron Technology  Small Cap

Significant diversification

The 3 months correlation between Micron and Small is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Equity has no effect on the direction of Micron Technology i.e., Micron Technology and Small Cap go up and down completely randomly.

Pair Corralation between Micron Technology and Small Cap

Allowing for the 90-day total investment horizon Micron Technology is expected to generate 3.57 times more return on investment than Small Cap. However, Micron Technology is 3.57 times more volatile than Small Cap Equity. It trades about 0.07 of its potential returns per unit of risk. Small Cap Equity is currently generating about -0.13 per unit of risk. If you would invest  9,000  in Micron Technology on December 20, 2024 and sell it today you would earn a total of  1,206  from holding Micron Technology or generate 13.4% return on investment over 90 days.

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

Micron Technology  vs.  Small Cap Equity

Micron Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 5 (%) 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.

Small Cap Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Micron Technology and Small Cap

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

The idea behind Micron Technology and Small Cap Equity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.