Correlation Between Semtech and Microchip Technology

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

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

Diversification Opportunities for Semtech and Microchip Technology

0.58

Correlation Coefficient

Semtech  Microchip Technology

Very weak diversification

The 3 months correlation between Semtech and Microchip is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Semtech and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of Semtech i.e., Semtech and Microchip Technology go up and down completely randomly.

Pair Corralation between Semtech and Microchip Technology

Given the investment horizon of 90 days Semtech is expected to generate 2.31 times more return on investment than Microchip Technology. However, Semtech is 2.31 times more volatile than Microchip Technology. It trades about 0.13 of its potential returns per unit of risk. Microchip Technology is currently generating about 0.04 per unit of risk. If you would invest  2,315  in Semtech on March 13, 2024 and sell it today you would earn a total of  785.00  from holding Semtech or generate 33.91% return on investment over 90 days.

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

Semtech  vs.  Microchip Technology

Semtech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Microchip Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Microchip Technology is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Semtech and Microchip Technology

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

The idea behind Semtech and Microchip Technology 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.