Correlation Between Microchip Technology and Charter Communications

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

Diversification Opportunities for Microchip Technology and Charter Communications

0.68

Correlation Coefficient

Microchip Technology  Charter Communications

Poor diversification

The 3 months correlation between Microchip and Charter is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Microchip Technology i.e., Microchip Technology and Charter Communications go up and down completely randomly.

Pair Corralation between Microchip Technology and Charter Communications

Assuming the 90 days trading horizon Microchip Technology Incorporated is expected to under-perform the Charter Communications. In addition to that, Microchip Technology is 1.17 times more volatile than Charter Communications. It trades about -0.05 of its total potential returns per unit of risk. Charter Communications is currently generating about -0.01 per unit of volatility. If you would invest  3,608  in Charter Communications on December 26, 2024 and sell it today you would lose (85.00) from holding Charter Communications or give up 2.36% of portfolio value over 90 days.

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

Microchip Technology Incorpora  vs.  Charter Communications

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.

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Charter Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microchip Technology and Charter Communications

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

The idea behind Microchip Technology Incorporated and Charter Communications 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.