Correlation Between Lindsell Train and Microchip Technology

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

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

Diversification Opportunities for Lindsell Train and Microchip Technology

-0.57

Correlation Coefficient

Lindsell Train  Microchip Technology

Excellent diversification

The 3 months correlation between Lindsell and Microchip is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Lindsell Train Investment and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Lindsell Train 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 Lindsell Train Investment 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 Lindsell Train i.e., Lindsell Train and Microchip Technology go up and down completely randomly.

Pair Corralation between Lindsell Train and Microchip Technology

Assuming the 90 days trading horizon Lindsell Train is expected to generate 2.54 times less return on investment than Microchip Technology. But when comparing it to its historical volatility, Lindsell Train Investment is 2.59 times less risky than Microchip Technology. It trades about 0.1 of its potential returns per unit of risk. Microchip Technology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,450  in Microchip Technology on December 2, 2024 and sell it today you would earn a total of  318.00  from holding Microchip Technology or generate 5.83% return on investment over 90 days.

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

Lindsell Train Investment  vs.  Microchip Technology

Lindsell Train Investment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Lindsell Train exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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.

Pair Trading with Lindsell Train and Microchip Technology

The main advantage of trading using opposite Lindsell Train and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lindsell Train 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 Lindsell Train Investment and Microchip Technology 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.