Correlation Between Microchip Technology and Renesas Electronics

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

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

Diversification Opportunities for Microchip Technology and Renesas Electronics

0.46

Correlation Coefficient

Microchip Technology  Renesas Electronics

Very weak diversification

The 3 months correlation between Microchip and Renesas is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Microchip Technology i.e., Microchip Technology and Renesas Electronics go up and down completely randomly.

Pair Corralation between Microchip Technology and Renesas Electronics

Given the investment horizon of 90 days Microchip Technology is expected to under-perform the Renesas Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology is 1.93 times less risky than Renesas Electronics. The stock trades about -0.06 of its potential returns per unit of risk. The Renesas Electronics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,543  in Renesas Electronics on October 5, 2024 and sell it today you would lose (238.00) from holding Renesas Electronics or give up 15.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

Microchip Technology  vs.  Renesas Electronics

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.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microchip Technology and Renesas Electronics

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

The idea behind Microchip Technology and Renesas Electronics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.