Correlation Between Microchip Technology and Valens

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

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

Diversification Opportunities for Microchip Technology and Valens

-0.63

Correlation Coefficient

Microchip Technology  Valens

Excellent diversification

The 3 months correlation between Microchip and Valens is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Valens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valens 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 Valens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valens has no effect on the direction of Microchip Technology i.e., Microchip Technology and Valens go up and down completely randomly.

Pair Corralation between Microchip Technology and Valens

Given the investment horizon of 90 days Microchip Technology is expected to generate 0.59 times more return on investment than Valens. However, Microchip Technology is 1.69 times less risky than Valens. It trades about -0.02 of its potential returns per unit of risk. Valens is currently generating about -0.01 per unit of risk. If you would invest  8,106  in Microchip Technology on October 24, 2024 and sell it today you would lose (2,237) from holding Microchip Technology or give up 27.6% of portfolio value over 90 days.

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

Microchip Technology  vs.  Valens

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

Valens

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valens are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Valens displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Valens

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

The idea behind Microchip Technology and Valens 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.