Correlation Between Microchip Technology and Future Metals

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

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

Diversification Opportunities for Microchip Technology and Future Metals

0.83

Correlation Coefficient

Microchip Technology  Future Metals

Very poor diversification

The 3 months correlation between Microchip and Future is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Future Metals NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Metals NL 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 Future Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Metals NL has no effect on the direction of Microchip Technology i.e., Microchip Technology and Future Metals go up and down completely randomly.

Pair Corralation between Microchip Technology and Future Metals

Assuming the 90 days trading horizon Microchip Technology is expected to under-perform the Future Metals. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 1.6 times less risky than Future Metals. The stock trades about -0.1 of its potential returns per unit of risk. The Future Metals NL is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  86.00  in Future Metals NL on December 1, 2024 and sell it today you would lose (11.00) from holding Future Metals NL or give up 12.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Microchip Technology  vs.  Future Metals NL

Microchip Technology

Risk-Adjusted Performance

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 conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Future Metals NL

Risk-Adjusted Performance

Very Weak

Over the last 90 days Future Metals NL 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microchip Technology and Future Metals

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

The idea behind Microchip Technology and Future Metals NL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.