Correlation Between FormFactor and Monolithic Power

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

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

Diversification Opportunities for FormFactor and Monolithic Power

-0.25

Correlation Coefficient

FormFactor  Monolithic Power

Very good diversification

The 3 months correlation between FormFactor and Monolithic is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and Monolithic Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monolithic Power Systems and FormFactor 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 FormFactor are associated (or correlated) with Monolithic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monolithic Power Systems has no effect on the direction of FormFactor i.e., FormFactor and Monolithic Power go up and down completely randomly.

Pair Corralation between FormFactor and Monolithic Power

Given the investment horizon of 90 days FormFactor is expected to under-perform the Monolithic Power. In addition to that, FormFactor is 1.3 times more volatile than Monolithic Power Systems. It trades about -0.03 of its total potential returns per unit of risk. Monolithic Power Systems is currently generating about 0.11 per unit of volatility. If you would invest  70,090  in Monolithic Power Systems on May 18, 2025 and sell it today you would earn a total of  12,557  from holding Monolithic Power Systems or generate 17.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

FormFactor  vs.  Monolithic Power Systems

FormFactor

Risk-Adjusted Performance

Weakest

Over the last 90 days FormFactor 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 healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Monolithic Power Systems

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Monolithic Power Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Monolithic Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FormFactor and Monolithic Power

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

The idea behind FormFactor and Monolithic Power Systems 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.