Correlation Between Microchip Technology and Natura Co

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

Diversification Opportunities for Microchip Technology and Natura Co

0.68

Correlation Coefficient

Microchip Technology  Natura Co

Poor diversification

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

Pair Corralation between Microchip Technology and Natura Co

Assuming the 90 days trading horizon Microchip Technology Incorporated is expected to under-perform the Natura Co. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology Incorporated is 1.13 times less risky than Natura Co. The stock trades about -0.03 of its potential returns per unit of risk. The Natura Co Holding is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,603  in Natura Co Holding on October 9, 2024 and sell it today you would lose (296.00) from holding Natura Co Holding or give up 18.47% 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.  Natura Co Holding

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.

Natura Co Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natura Co Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microchip Technology and Natura Co

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

The idea behind Microchip Technology Incorporated and Natura Co Holding 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.