Correlation Between MagnaChip Semiconductor and Diodes Incorporated

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

By analyzing existing cross correlation between MagnaChip Semiconductor and Diodes Incorporated, you can compare the effects of market volatilities on MagnaChip Semiconductor and Diodes Incorporated 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 MagnaChip Semiconductor with a short position of Diodes Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of MagnaChip Semiconductor and Diodes Incorporated.

Diversification Opportunities for MagnaChip Semiconductor and Diodes Incorporated

0.88

Correlation Coefficient

MagnaChip Semiconductor  Diodes Incorporated

Very poor diversification

The 12 months correlation between MagnaChip and Diodes is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor and Diodes Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diodes Incorporated and MagnaChip Semiconductor 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 MagnaChip Semiconductor are associated (or correlated) with Diodes Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diodes Incorporated has no effect on the direction of MagnaChip Semiconductor i.e., MagnaChip Semiconductor and Diodes Incorporated go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and Diodes Incorporated

Allowing for the 90-day total investment horizon MagnaChip Semiconductor is expected to under-perform the Diodes Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, MagnaChip Semiconductor is 1.03 times less risky than Diodes Incorporated. The stock trades about -0.09 of its potential returns per unit of risk. The Diodes Incorporated is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,676  in Diodes Incorporated on February 6, 2024 and sell it today you would earn a total of  740.00  from holding Diodes Incorporated or generate 11.08% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

MagnaChip Semiconductor  vs.  Diodes Incorporated

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

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 latest unfluctuating 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.

Diodes Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diodes Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MagnaChip Semiconductor and Diodes Incorporated

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

The idea behind MagnaChip Semiconductor and Diodes Incorporated 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.