Correlation Between Microchip Technology and Applied Materials

Can any of the company-specific risk be diversified away by investing in both Microchip Technology and Applied Materials 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 Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microchip Technology and Applied Materials, you can compare the effects of market volatilities on Microchip Technology and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and Applied Materials.

Diversification Opportunities for Microchip Technology and Applied Materials

0.08

Correlation Coefficient

Microchip Technology  Applied Materials

Significant diversification

The 3 months correlation between Microchip and Applied is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Microchip Technology i.e., Microchip Technology and Applied Materials go up and down completely randomly.

Pair Corralation between Microchip Technology and Applied Materials

Given the investment horizon of 90 days Microchip Technology is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 1.01 times less risky than Applied Materials. The stock trades about -0.09 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  16,891  in Applied Materials on November 19, 2024 and sell it today you would earn a total of  29.00  from holding Applied Materials or generate 0.17% return on investment over 90 days.

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

Microchip Technology  vs.  Applied Materials

Microchip Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Applied Materials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Applied Materials is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microchip Technology and Applied Materials

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

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