Correlation Between Microchip Technology and NESTE OYJ

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

Diversification Opportunities for Microchip Technology and NESTE OYJ

0.84

Correlation Coefficient

Microchip Technology  NESTE OYJ

Very poor diversification

The 3 months correlation between Microchip and NESTE is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and NESTE OYJ UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NESTE OYJ UNSPADR 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 NESTE OYJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NESTE OYJ UNSPADR has no effect on the direction of Microchip Technology i.e., Microchip Technology and NESTE OYJ go up and down completely randomly.

Pair Corralation between Microchip Technology and NESTE OYJ

Assuming the 90 days horizon Microchip Technology Incorporated is expected to generate 0.87 times more return on investment than NESTE OYJ. However, Microchip Technology Incorporated is 1.15 times less risky than NESTE OYJ. It trades about -0.04 of its potential returns per unit of risk. NESTE OYJ UNSPADR is currently generating about -0.09 per unit of risk. If you would invest  7,756  in Microchip Technology Incorporated on October 7, 2024 and sell it today you would lose (2,225) from holding Microchip Technology Incorporated or give up 28.69% 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.  NESTE OYJ UNSPADR

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 unfluctuating 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.

NESTE OYJ UNSPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NESTE OYJ UNSPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental 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.

Pair Trading with Microchip Technology and NESTE OYJ

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

The idea behind Microchip Technology Incorporated and NESTE OYJ UNSPADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.