Correlation Between Microchip Technology and Alfa Financial

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

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

Diversification Opportunities for Microchip Technology and Alfa Financial

-0.8

Correlation Coefficient

Microchip Technology  Alfa Financial

Pay attention - limited upside

The 3 months correlation between Microchip and Alfa is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Alfa Financial Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Financial Software 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 Alfa Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Financial Software has no effect on the direction of Microchip Technology i.e., Microchip Technology and Alfa Financial go up and down completely randomly.

Pair Corralation between Microchip Technology and Alfa Financial

Assuming the 90 days trading horizon Microchip Technology is expected to under-perform the Alfa Financial. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 1.08 times less risky than Alfa Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Alfa Financial Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  13,394  in Alfa Financial Software on August 26, 2024 and sell it today you would earn a total of  8,406  from holding Alfa Financial Software or generate 62.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.24%
Values	Daily Returns

Microchip Technology  vs.  Alfa Financial Software

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Alfa Financial Software

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Alfa Financial

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

The idea behind Microchip Technology and Alfa Financial Software 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.