Correlation Between Microchip Technology and Delta Air

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

Diversification Opportunities for Microchip Technology and Delta Air

-0.7

Correlation Coefficient

Microchip Technology  Delta Air

Excellent diversification

The 3 months correlation between Microchip and Delta is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines 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 Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of Microchip Technology i.e., Microchip Technology and Delta Air go up and down completely randomly.

Pair Corralation between Microchip Technology and Delta Air

Assuming the 90 days trading horizon Microchip Technology is expected to generate 12.43 times less return on investment than Delta Air. But when comparing it to its historical volatility, Microchip Technology Incorporated is 1.12 times less risky than Delta Air. It trades about 0.01 of its potential returns per unit of risk. Delta Air Lines is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  19,879  in Delta Air Lines on October 11, 2024 and sell it today you would earn a total of  16,785  from holding Delta Air Lines or generate 84.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

Microchip Technology Incorpora  vs.  Delta Air Lines

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.

Delta Air Lines

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Delta Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Delta Air

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

The idea behind Microchip Technology Incorporated and Delta Air Lines 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.