Correlation Between Microchip Technology and COSMOSTEEL HLDGS

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

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

Diversification Opportunities for Microchip Technology and COSMOSTEEL HLDGS

-0.48

Correlation Coefficient

Microchip Technology  COSMOSTEEL HLDGS

Very good diversification

The 3 months correlation between Microchip and COSMOSTEEL is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and COSMOSTEEL HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSMOSTEEL HLDGS 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 Incorporated are associated (or correlated) with COSMOSTEEL HLDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSMOSTEEL HLDGS has no effect on the direction of Microchip Technology i.e., Microchip Technology and COSMOSTEEL HLDGS go up and down completely randomly.

Pair Corralation between Microchip Technology and COSMOSTEEL HLDGS

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the COSMOSTEEL HLDGS. But the stock apears to be less risky and, when comparing its historical volatility, Microchip Technology Incorporated is 1.3 times less risky than COSMOSTEEL HLDGS. The stock trades about -0.17 of its potential returns per unit of risk. The COSMOSTEEL HLDGS is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6.05  in COSMOSTEEL HLDGS on September 22, 2024 and sell it today you would earn a total of  0.95  from holding COSMOSTEEL HLDGS or generate 15.7% 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 Incorpora  vs.  COSMOSTEEL HLDGS

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

COSMOSTEEL HLDGS

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in COSMOSTEEL HLDGS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, COSMOSTEEL HLDGS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microchip Technology and COSMOSTEEL HLDGS

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

The idea behind Microchip Technology Incorporated and COSMOSTEEL HLDGS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.