Correlation Between Microchip Technology and Onto Innovation

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

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

Diversification Opportunities for Microchip Technology and Onto Innovation

0.87

Correlation Coefficient

Microchip Technology  Onto Innovation

Very poor diversification

The 3 months correlation between Microchip and Onto is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Onto Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Onto Innovation 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 Onto Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Onto Innovation has no effect on the direction of Microchip Technology i.e., Microchip Technology and Onto Innovation go up and down completely randomly.

Pair Corralation between Microchip Technology and Onto Innovation

Given the investment horizon of 90 days Microchip Technology is expected to generate 0.81 times more return on investment than Onto Innovation. However, Microchip Technology is 1.23 times less risky than Onto Innovation. It trades about -0.25 of its potential returns per unit of risk. Onto Innovation is currently generating about -0.39 per unit of risk. If you would invest  7,851  in Microchip Technology on August 30, 2024 and sell it today you would lose (1,064) from holding Microchip Technology or give up 13.55% of portfolio value over 90 days.

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

Microchip Technology  vs.  Onto Innovation

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 weak performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Onto Innovation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Onto Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microchip Technology and Onto Innovation

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

The idea behind Microchip Technology and Onto Innovation 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.