Correlation Between Microchip Technology and Lattice Semiconductor

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

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

Diversification Opportunities for Microchip Technology and Lattice Semiconductor

0.08

Correlation Coefficient

Microchip Technology  Lattice Semiconductor

Significant diversification

The 3 months correlation between Microchip and Lattice is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Lattice Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lattice Semiconductor and Microchip Technology 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 Microchip Technology are associated (or correlated) with Lattice Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lattice Semiconductor has no effect on the direction of Microchip Technology i.e., Microchip Technology and Lattice Semiconductor go up and down completely randomly.

Pair Corralation between Microchip Technology and Lattice Semiconductor

Given the investment horizon of 90 days Microchip Technology is expected to generate 0.77 times more return on investment than Lattice Semiconductor. However, Microchip Technology is 1.31 times less risky than Lattice Semiconductor. It trades about 0.11 of its potential returns per unit of risk. Lattice Semiconductor is currently generating about -0.01 per unit of risk. If you would invest  8,524  in Microchip Technology on March 5, 2024 and sell it today you would earn a total of  1,199  from holding Microchip Technology or generate 14.07% return on investment over 90 days.

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

Microchip Technology  vs.  Lattice Semiconductor

Microchip Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Microchip Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Lattice Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microchip Technology and Lattice Semiconductor

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

The idea behind Microchip Technology and Lattice 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.