Correlation Between New Oriental and Microchip Technology

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

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

Diversification Opportunities for New Oriental and Microchip Technology

0.3

Correlation Coefficient

New Oriental  Microchip Technology

Weak diversification

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

Pair Corralation between New Oriental and Microchip Technology

Assuming the 90 days trading horizon New Oriental Education is expected to under-perform the Microchip Technology. In addition to that, New Oriental is 1.73 times more volatile than Microchip Technology Incorporated. It trades about -0.13 of its total potential returns per unit of risk. Microchip Technology Incorporated is currently generating about -0.05 per unit of volatility. If you would invest  16,956  in Microchip Technology Incorporated on December 26, 2024 and sell it today you would lose (1,541) from holding Microchip Technology Incorporated or give up 9.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

New Oriental Education  vs.  Microchip Technology Incorpora

New Oriental Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with New Oriental and Microchip Technology

The main advantage of trading using opposite New Oriental and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Oriental 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 New Oriental Education 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.