Correlation Between Monolithic Power and SunPower

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

Diversification Opportunities for Monolithic Power and SunPower

-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between Monolithic and SunPower is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Monolithic Power Systems and SunPower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SunPower and Monolithic Power 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 Monolithic Power Systems are associated (or correlated) with SunPower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SunPower has no effect on the direction of Monolithic Power i.e., Monolithic Power and SunPower go up and down completely randomly.

Pair Corralation between Monolithic Power and SunPower

Given the investment horizon of 90 days Monolithic Power Systems is expected to generate 0.45 times more return on investment than SunPower. However, Monolithic Power Systems is 2.22 times less risky than SunPower. It trades about -0.09 of its potential returns per unit of risk. SunPower is currently generating about -0.09 per unit of risk. If you would invest  70,929  in Monolithic Power Systems on December 29, 2023 and sell it today you would lose (3,615) from holding Monolithic Power Systems or give up 5.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Monolithic Power Systems  vs.  SunPower

 Performance 
       Timeline  
Monolithic Power Systems 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Monolithic Power Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Monolithic Power may actually be approaching a critical reversion point that can send shares even higher in April 2024.
SunPower 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days SunPower has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Monolithic Power and SunPower Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Monolithic Power and SunPower

The main advantage of trading using opposite Monolithic Power and SunPower positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monolithic Power position performs unexpectedly, SunPower 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 SunPower will offset losses from the drop in SunPower's long position.
The idea behind Monolithic Power Systems and SunPower 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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