Correlation Between Global X and Microchip Technology

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

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

Diversification Opportunities for Global X and Microchip Technology

-0.76

Correlation Coefficient

Global X  Microchip Technology

Pay attention - limited upside

The 3 months correlation between Global and Microchip is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Global X Funds and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Global X 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 Global X Funds 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 Global X i.e., Global X and Microchip Technology go up and down completely randomly.

Pair Corralation between Global X and Microchip Technology

Assuming the 90 days trading horizon Global X Funds is expected to generate 0.65 times more return on investment than Microchip Technology. However, Global X Funds is 1.55 times less risky than Microchip Technology. It trades about 0.08 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about 0.01 per unit of risk. If you would invest  2,965  in Global X Funds on October 11, 2024 and sell it today you would earn a total of  1,995  from holding Global X Funds or generate 67.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.99%
Values	Daily Returns

Global X Funds  vs.  Microchip Technology Incorpora

Global X Funds

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Funds are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Microchip Technology

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Global X and Microchip Technology

The main advantage of trading using opposite Global X and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X 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 Global X Funds 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.