Correlation Between Semtech and Allegro Microsystems

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

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

Diversification Opportunities for Semtech and Allegro Microsystems

-0.17

Correlation Coefficient

Semtech  Allegro Microsystems

Good diversification

The 3 months correlation between Semtech and Allegro is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Semtech and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems and Semtech 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 Semtech are associated (or correlated) with Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of Semtech i.e., Semtech and Allegro Microsystems go up and down completely randomly.

Pair Corralation between Semtech and Allegro Microsystems

Given the investment horizon of 90 days Semtech is expected to generate 1.33 times more return on investment than Allegro Microsystems. However, Semtech is 1.33 times more volatile than Allegro Microsystems. It trades about 0.08 of its potential returns per unit of risk. Allegro Microsystems is currently generating about -0.04 per unit of risk. If you would invest  6,263  in Semtech on September 14, 2025 and sell it today you would earn a total of  1,026  from holding Semtech or generate 16.38% return on investment over 90 days.

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

Semtech  vs.  Allegro Microsystems

Semtech

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Allegro Microsystems

Risk-Adjusted Performance

Weakest

Over the last 90 days Allegro Microsystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Semtech and Allegro Microsystems

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

The idea behind Semtech and Allegro Microsystems 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.