Correlation Between Analog Devices and MagnaChip Semiconductor

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Can any of the company-specific risk be diversified away by investing in both Analog Devices 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 Analog Devices and MagnaChip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Analog Devices and MagnaChip Semiconductor, you can compare the effects of market volatilities on Analog Devices 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 Analog Devices with a short position of MagnaChip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and MagnaChip Semiconductor.

Diversification Opportunities for Analog Devices and MagnaChip Semiconductor

-0.14
  Correlation Coefficient

Good diversification

The 3 months correlation between Analog and MagnaChip is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor and Analog Devices 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 Analog Devices 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 Analog Devices i.e., Analog Devices and MagnaChip Semiconductor go up and down completely randomly.

Pair Corralation between Analog Devices and MagnaChip Semiconductor

Considering the 90-day investment horizon Analog Devices is expected to generate 0.71 times more return on investment than MagnaChip Semiconductor. However, Analog Devices is 1.41 times less risky than MagnaChip Semiconductor. It trades about 0.03 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.09 per unit of risk. If you would invest  17,512  in Analog Devices on December 29, 2023 and sell it today you would earn a total of  1,821  from holding Analog Devices or generate 10.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Analog Devices  vs.  MagnaChip Semiconductor

 Performance 
       Timeline  
Analog Devices 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
MagnaChip Semiconductor 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days MagnaChip Semiconductor 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 fairly strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Analog Devices and MagnaChip Semiconductor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Analog Devices and MagnaChip Semiconductor

The main advantage of trading using opposite Analog Devices and MagnaChip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices position performs unexpectedly, MagnaChip Semiconductor 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 MagnaChip Semiconductor will offset losses from the drop in MagnaChip Semiconductor's long position.
The idea behind Analog Devices and MagnaChip Semiconductor 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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