Correlation Between Microchip Technology and Associated British

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

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

Diversification Opportunities for Microchip Technology and Associated British

0.58

Correlation Coefficient

Microchip Technology  Associated British

Very weak diversification

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

Pair Corralation between Microchip Technology and Associated British

Assuming the 90 days trading horizon Microchip Technology is expected to under-perform the Associated British. In addition to that, Microchip Technology is 2.13 times more volatile than Associated British Foods. It trades about -0.16 of its total potential returns per unit of risk. Associated British Foods is currently generating about -0.02 per unit of volatility. If you would invest  228,900  in Associated British Foods on September 5, 2024 and sell it today you would lose (1,700) from holding Associated British Foods or give up 0.74% of portfolio value over 90 days.

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

Microchip Technology  vs.  Associated British Foods

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microchip Technology and Associated British

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

The idea behind Microchip Technology and Associated British Foods 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.