Correlation Between Microchip Technology and X FAB

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

Diversification Opportunities for Microchip Technology and X FAB

0.67

Correlation Coefficient

Microchip Technology  X FAB

Poor diversification

The 3 months correlation between Microchip and XFB is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon 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 X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Microchip Technology i.e., Microchip Technology and X FAB go up and down completely randomly.

Pair Corralation between Microchip Technology and X FAB

Assuming the 90 days horizon Microchip Technology Incorporated is expected to generate 0.68 times more return on investment than X FAB. However, Microchip Technology Incorporated is 1.48 times less risky than X FAB. It trades about -0.04 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.05 per unit of risk. If you would invest  7,009  in Microchip Technology Incorporated on September 3, 2024 and sell it today you would lose (445.00) from holding Microchip Technology Incorporated or give up 6.35% of portfolio value over 90 days.

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

Microchip Technology Incorpora  vs.  X FAB Silicon Foundries

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 nearly stable basic indicators, Microchip Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Microchip Technology and X FAB

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

The idea behind Microchip Technology Incorporated and X FAB Silicon Foundries 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.