Correlation Between Micron Technology and KAT Exploration

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

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

Diversification Opportunities for Micron Technology and KAT Exploration

0.01

Correlation Coefficient

Micron Technology  KAT Exploration

Significant diversification

The 3 months correlation between Micron and KAT is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and KAT Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAT Exploration 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 KAT Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAT Exploration has no effect on the direction of Micron Technology i.e., Micron Technology and KAT Exploration go up and down completely randomly.

Pair Corralation between Micron Technology and KAT Exploration

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the KAT Exploration. But the stock apears to be less risky and, when comparing its historical volatility, Micron Technology is 16.19 times less risky than KAT Exploration. The stock trades about -0.07 of its potential returns per unit of risk. The KAT Exploration is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.02  in KAT Exploration on September 15, 2024 and sell it today you would earn a total of  0.00  from holding KAT Exploration or generate 0.0% 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.  KAT Exploration

Micron Technology

Risk-Adjusted Performance

7 of 100

OK

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 unfluctuating basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

KAT Exploration

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAT Exploration are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, KAT Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and KAT Exploration

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

The idea behind Micron Technology and KAT Exploration 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.