Correlation Between GENERAL and MACOM Technology

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

By analyzing existing cross correlation between GENERAL ELEC CAP and MACOM Technology Solutions, you can compare the effects of market volatilities on GENERAL and MACOM Technology 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 GENERAL with a short position of MACOM Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of GENERAL and MACOM Technology.

Diversification Opportunities for GENERAL and MACOM Technology

0.35

Correlation Coefficient

GENERAL  MACOM Technology

Weak diversification

The 3 months correlation between GENERAL and MACOM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and MACOM Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MACOM Technology Sol and GENERAL 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 GENERAL ELEC CAP are associated (or correlated) with MACOM Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MACOM Technology Sol has no effect on the direction of GENERAL i.e., GENERAL and MACOM Technology go up and down completely randomly.

Pair Corralation between GENERAL and MACOM Technology

Assuming the 90 days trading horizon GENERAL is expected to generate 4.17 times less return on investment than MACOM Technology. But when comparing it to its historical volatility, GENERAL ELEC CAP is 1.02 times less risky than MACOM Technology. It trades about 0.02 of its potential returns per unit of risk. MACOM Technology Solutions is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,589  in MACOM Technology Solutions on October 26, 2024 and sell it today you would earn a total of  7,828  from holding MACOM Technology Solutions or generate 118.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	20.45%
Values	Daily Returns

GENERAL ELEC CAP  vs.  MACOM Technology Solutions

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for GENERAL ELEC CAP investors.

MACOM Technology Sol

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, MACOM Technology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GENERAL and MACOM Technology

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

The idea behind GENERAL ELEC CAP and MACOM Technology Solutions 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.