Correlation Between Microchip Technology and SemiLEDS

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

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

Diversification Opportunities for Microchip Technology and SemiLEDS

-0.52

Correlation Coefficient

Microchip Technology  SemiLEDS

Excellent diversification

The 3 months correlation between Microchip and SemiLEDS is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and SemiLEDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SemiLEDS 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 SemiLEDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SemiLEDS has no effect on the direction of Microchip Technology i.e., Microchip Technology and SemiLEDS go up and down completely randomly.

Pair Corralation between Microchip Technology and SemiLEDS

Given the investment horizon of 90 days Microchip Technology is expected to under-perform the SemiLEDS. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 2.68 times less risky than SemiLEDS. The stock trades about -0.22 of its potential returns per unit of risk. The SemiLEDS is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  120.00  in SemiLEDS on October 13, 2024 and sell it today you would earn a total of  12.00  from holding SemiLEDS or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microchip Technology  vs.  SemiLEDS

Microchip Technology

Risk-Adjusted Performance

0 of 100

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 February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

SemiLEDS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SemiLEDS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, SemiLEDS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and SemiLEDS

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

The idea behind Microchip Technology and SemiLEDS 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.