Correlation Between AOYAMA TRADING and Microchip Technology

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

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

Diversification Opportunities for AOYAMA TRADING and Microchip Technology

0.29

Correlation Coefficient

AOYAMA TRADING  Microchip Technology

Modest diversification

The 3 months correlation between AOYAMA and Microchip is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding AOYAMA TRADING and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and AOYAMA TRADING 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 AOYAMA TRADING 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 AOYAMA TRADING i.e., AOYAMA TRADING and Microchip Technology go up and down completely randomly.

Pair Corralation between AOYAMA TRADING and Microchip Technology

Assuming the 90 days horizon AOYAMA TRADING is expected to generate 0.41 times more return on investment than Microchip Technology. However, AOYAMA TRADING is 2.43 times less risky than Microchip Technology. It trades about -0.09 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about -0.06 per unit of risk. If you would invest  1,390  in AOYAMA TRADING on December 21, 2024 and sell it today you would lose (90.00) from holding AOYAMA TRADING or give up 6.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

AOYAMA TRADING  vs.  Microchip Technology Incorpora

AOYAMA TRADING

Risk-Adjusted Performance

Very Weak

Over the last 90 days AOYAMA TRADING has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Microchip Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with AOYAMA TRADING and Microchip Technology

The main advantage of trading using opposite AOYAMA TRADING and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AOYAMA TRADING 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 AOYAMA TRADING and Microchip Technology Incorporated 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.