Correlation Between Microchip Technology and NVIDIA

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

Diversification Opportunities for Microchip Technology and NVIDIA

-0.42
  Correlation Coefficient

Very good diversification

The 3 months correlation between Microchip and NVIDIA is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Microchip Technology i.e., Microchip Technology and NVIDIA go up and down completely randomly.

Pair Corralation between Microchip Technology and NVIDIA

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the NVIDIA. In addition to that, Microchip Technology is 1.13 times more volatile than NVIDIA. It trades about -0.13 of its total potential returns per unit of risk. NVIDIA is currently generating about 0.15 per unit of volatility. If you would invest  10,387  in NVIDIA on September 22, 2024 and sell it today you would earn a total of  2,475  from holding NVIDIA or generate 23.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy98.48%
ValuesDaily Returns

Microchip Technology Incorpora  vs.  NVIDIA

 Performance 
       Timeline  
Microchip Technology 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
NVIDIA 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, NVIDIA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microchip Technology and NVIDIA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microchip Technology and NVIDIA

The main advantage of trading using opposite Microchip Technology and NVIDIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, NVIDIA 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 NVIDIA will offset losses from the drop in NVIDIA's long position.
The idea behind Microchip Technology Incorporated and NVIDIA 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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