Correlation Between Microchip Technology and AvalonBay Communities

Can any of the company-specific risk be diversified away by investing in both Microchip Technology and AvalonBay Communities 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 AvalonBay Communities 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 AvalonBay Communities, you can compare the effects of market volatilities on Microchip Technology and AvalonBay Communities 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 AvalonBay Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and AvalonBay Communities.

Diversification Opportunities for Microchip Technology and AvalonBay Communities

-0.67

Correlation Coefficient

Microchip Technology  AvalonBay Communities

Excellent diversification

The 3 months correlation between Microchip and AvalonBay is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities 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 AvalonBay Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AvalonBay Communities has no effect on the direction of Microchip Technology i.e., Microchip Technology and AvalonBay Communities go up and down completely randomly.

Pair Corralation between Microchip Technology and AvalonBay Communities

Assuming the 90 days trading horizon Microchip Technology is expected to generate 10.01 times less return on investment than AvalonBay Communities. In addition to that, Microchip Technology is 1.02 times more volatile than AvalonBay Communities. It trades about 0.01 of its total potential returns per unit of risk. AvalonBay Communities is currently generating about 0.07 per unit of volatility. If you would invest  20,398  in AvalonBay Communities on October 4, 2024 and sell it today you would earn a total of  13,602  from holding AvalonBay Communities or generate 66.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	88.59%
Values	Daily Returns

Microchip Technology Incorpora  vs.  AvalonBay Communities

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.

AvalonBay Communities

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days AvalonBay Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, AvalonBay Communities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and AvalonBay Communities

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

The idea behind Microchip Technology Incorporated and AvalonBay Communities 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.

Check out your portfolio center.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.