Correlation Between Microchip Technology and Air Products

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

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

Diversification Opportunities for Microchip Technology and Air Products

0.05

Correlation Coefficient

Microchip Technology  Air Products

Significant diversification

The 3 months correlation between Microchip and Air is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Microchip Technology 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 Microchip Technology Incorporated are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Microchip Technology i.e., Microchip Technology and Air Products go up and down completely randomly.

Pair Corralation between Microchip Technology and Air Products

Assuming the 90 days trading horizon Microchip Technology Incorporated is expected to under-perform the Air Products. In addition to that, Microchip Technology is 1.58 times more volatile than Air Products and. It trades about -0.14 of its total potential returns per unit of risk. Air Products and is currently generating about 0.0 per unit of volatility. If you would invest  45,088  in Air Products and on October 7, 2024 and sell it today you would lose (238.00) from holding Air Products and or give up 0.53% of portfolio value over 90 days.

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

Microchip Technology Incorpora  vs.  Air Products and

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.

Air Products

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air Products sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Air Products

The main advantage of trading using opposite Microchip Technology and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.

The idea behind Microchip Technology Incorporated and Air Products and 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.