Correlation Between Microchip Technology and Nippon Light

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

Diversification Opportunities for Microchip Technology and Nippon Light

0.51

Correlation Coefficient

Microchip Technology  Nippon Light

Very weak diversification

The 3 months correlation between Microchip and Nippon is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Nippon Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Light Metal 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 Nippon Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Light Metal has no effect on the direction of Microchip Technology i.e., Microchip Technology and Nippon Light go up and down completely randomly.

Pair Corralation between Microchip Technology and Nippon Light

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the Nippon Light. In addition to that, Microchip Technology is 1.56 times more volatile than Nippon Light Metal. It trades about -0.16 of its total potential returns per unit of risk. Nippon Light Metal is currently generating about -0.02 per unit of volatility. If you would invest  960.00  in Nippon Light Metal on October 23, 2024 and sell it today you would lose (30.00) from holding Nippon Light Metal or give up 3.12% of portfolio value over 90 days.

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

Microchip Technology Incorpora  vs.  Nippon Light Metal

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 unsteady 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.

Nippon Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Light is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microchip Technology and Nippon Light

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

The idea behind Microchip Technology Incorporated and Nippon Light Metal 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.