Correlation Between Micron Technology and IShares Edge

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

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

Diversification Opportunities for Micron Technology and IShares Edge

0.63

Correlation Coefficient

Micron Technology  IShares Edge

Poor diversification

The 3 months correlation between Micron and IShares is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI 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 IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of Micron Technology i.e., Micron Technology and IShares Edge go up and down completely randomly.

Pair Corralation between Micron Technology and IShares Edge

Allowing for the 90-day total investment horizon Micron Technology is expected to generate 5.04 times more return on investment than IShares Edge. However, Micron Technology is 5.04 times more volatile than iShares Edge MSCI. It trades about 0.05 of its potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.04 per unit of risk. If you would invest  5,581  in Micron Technology on September 30, 2024 and sell it today you would earn a total of  3,282  from holding Micron Technology or generate 58.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.4%
Values	Daily Returns

Micron Technology  vs.  iShares Edge MSCI

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.

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, IShares Edge is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Micron Technology and IShares Edge

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

The idea behind Micron Technology and iShares Edge MSCI 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.