Correlation Between Microchip Technology and Dell Technologies

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

Diversification Opportunities for Microchip Technology and Dell Technologies

-0.22

Correlation Coefficient

Microchip Technology  Dell Technologies

Very good diversification

The 3 months correlation between Microchip and Dell is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Dell Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dell Technologies 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 Dell Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dell Technologies has no effect on the direction of Microchip Technology i.e., Microchip Technology and Dell Technologies go up and down completely randomly.

Pair Corralation between Microchip Technology and Dell Technologies

Assuming the 90 days trading horizon Microchip Technology is expected to generate 19.87 times less return on investment than Dell Technologies. But when comparing it to its historical volatility, Microchip Technology Incorporated is 1.61 times less risky than Dell Technologies. It trades about 0.01 of its potential returns per unit of risk. Dell Technologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  20,163  in Dell Technologies on October 10, 2024 and sell it today you would earn a total of  53,728  from holding Dell Technologies or generate 266.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.16%
Values	Daily Returns

Microchip Technology Incorpora  vs.  Dell Technologies

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.

Dell Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dell Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Dell Technologies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microchip Technology and Dell Technologies

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

The idea behind Microchip Technology Incorporated and Dell Technologies 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.