Correlation Between Becton Dickinson and Microchip Technology

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

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

Diversification Opportunities for Becton Dickinson and Microchip Technology

0.3

Correlation Coefficient

Becton Dickinson  Microchip Technology

Weak diversification

The 3 months correlation between Becton and Microchip is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Becton Dickinson and and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Becton Dickinson 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 Becton Dickinson and 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 Becton Dickinson i.e., Becton Dickinson and Microchip Technology go up and down completely randomly.

Pair Corralation between Becton Dickinson and Microchip Technology

Assuming the 90 days horizon Becton Dickinson and is expected to generate 0.77 times more return on investment than Microchip Technology. However, Becton Dickinson and is 1.3 times less risky than Microchip Technology. It trades about 0.0 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about 0.0 per unit of risk. If you would invest  21,294  in Becton Dickinson and on September 5, 2024 and sell it today you would lose (204.00) from holding Becton Dickinson and or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Becton Dickinson and  vs.  Microchip Technology Incorpora

Becton Dickinson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Becton Dickinson and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Becton Dickinson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 nearly stable basic indicators, Microchip Technology is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Becton Dickinson and Microchip Technology

The main advantage of trading using opposite Becton Dickinson and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Becton Dickinson 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 Becton Dickinson and 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .