Can any of the company-specific risk be diversified away by investing in both Smart Global and MagnaChip Semiconductor 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 Smart Global and MagnaChip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smart Global Holdings and MagnaChip Semiconductor, you can compare the effects of market volatilities on Smart Global and MagnaChip Semiconductor 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 Smart Global with a short position of MagnaChip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smart Global and MagnaChip Semiconductor.
Diversification Opportunities for Smart Global and MagnaChip Semiconductor
The 3 months correlation between Smart and MagnaChip is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Smart Global Holdings and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor and Smart Global 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 Smart Global Holdings are associated (or correlated) with MagnaChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MagnaChip Semiconductor has no effect on the direction of Smart Global i.e., Smart Global and MagnaChip Semiconductor go up and down completely randomly.
Pair Corralation between Smart Global and MagnaChip Semiconductor
Considering the 90-day investment horizon Smart Global Holdings is expected to generate 1.32 times more return on investment than MagnaChip Semiconductor. However, Smart Global is 1.32 times more volatile than MagnaChip Semiconductor. It trades about 0.28 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.12 per unit of risk. If you would invest 1,858 in Smart Global Holdings on March 6, 2024 and sell it today you would earn a total of 189.00 from holding Smart Global Holdings or generate 10.17% return on investment over 90 days.
Over the last 90 days Smart Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.
Over the last 90 days MagnaChip Semiconductor 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.