Correlation Between Microchip Technology and LION ONE

Can any of the company-specific risk be diversified away by investing in both Microchip Technology and LION ONE 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 LION ONE 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 LION ONE METALS, you can compare the effects of market volatilities on Microchip Technology and LION ONE 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 LION ONE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and LION ONE.

Diversification Opportunities for Microchip Technology and LION ONE

0.85

Correlation Coefficient

Microchip Technology  LION ONE

Very poor diversification

The 3 months correlation between Microchip and LION is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and LION ONE METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LION ONE METALS 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 LION ONE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LION ONE METALS has no effect on the direction of Microchip Technology i.e., Microchip Technology and LION ONE go up and down completely randomly.

Pair Corralation between Microchip Technology and LION ONE

Assuming the 90 days horizon Microchip Technology Incorporated is expected to generate 0.57 times more return on investment than LION ONE. However, Microchip Technology Incorporated is 1.77 times less risky than LION ONE. It trades about 0.0 of its potential returns per unit of risk. LION ONE METALS is currently generating about -0.05 per unit of risk. If you would invest  6,656  in Microchip Technology Incorporated on October 3, 2024 and sell it today you would lose (1,079) from holding Microchip Technology Incorporated or give up 16.21% of portfolio value over 90 days.

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

Microchip Technology Incorpora  vs.  LION ONE METALS

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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LION ONE METALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LION ONE METALS 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 comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microchip Technology and LION ONE

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

The idea behind Microchip Technology Incorporated and LION ONE METALS 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.