Correlation Between Microchip Technology and Cable One

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

Diversification Opportunities for Microchip Technology and Cable One

-0.61

Correlation Coefficient

Microchip Technology  Cable One

Excellent diversification

The 3 months correlation between Microchip and Cable is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Cable One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cable One 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 Cable One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cable One has no effect on the direction of Microchip Technology i.e., Microchip Technology and Cable One go up and down completely randomly.

Pair Corralation between Microchip Technology and Cable One

Assuming the 90 days trading horizon Microchip Technology Incorporated is expected to under-perform the Cable One. In addition to that, Microchip Technology is 1.21 times more volatile than Cable One. It trades about -0.11 of its total potential returns per unit of risk. Cable One is currently generating about 0.15 per unit of volatility. If you would invest  912.00  in Cable One on October 11, 2024 and sell it today you would earn a total of  172.00  from holding Cable One or generate 18.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Microchip Technology Incorpora  vs.  Cable One

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.

Cable One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cable One are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cable One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Cable One

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

The idea behind Microchip Technology Incorporated and Cable One 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.