Correlation Between Micron Technology and NEXTDC

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

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

Diversification Opportunities for Micron Technology and NEXTDC

-0.34

Correlation Coefficient

Micron Technology  NEXTDC

Very good diversification

The 3 months correlation between Micron and NEXTDC is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and NEXTDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC Limited 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC Limited has no effect on the direction of Micron Technology i.e., Micron Technology and NEXTDC go up and down completely randomly.

Pair Corralation between Micron Technology and NEXTDC

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the NEXTDC. In addition to that, Micron Technology is 1.72 times more volatile than NEXTDC Limited. It trades about -0.13 of its total potential returns per unit of risk. NEXTDC Limited is currently generating about 0.22 per unit of volatility. If you would invest  888.00  in NEXTDC Limited on September 26, 2024 and sell it today you would earn a total of  118.00  from holding NEXTDC Limited or generate 13.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Micron Technology  vs.  NEXTDC Limited

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NEXTDC Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEXTDC Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, NEXTDC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Micron Technology and NEXTDC

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

The idea behind Micron Technology and NEXTDC Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.