Correlation Between Renesas Electronics and Microchip Technology

Can any of the company-specific risk be diversified away by investing in both Renesas Electronics and Microchip Technology 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 Renesas Electronics and Microchip Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Renesas Electronics Corp and Microchip Technology, you can compare the effects of market volatilities on Renesas Electronics and Microchip Technology 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 Renesas Electronics with a short position of Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renesas Electronics and Microchip Technology.

Diversification Opportunities for Renesas Electronics and Microchip Technology

0.68

Correlation Coefficient

Renesas Electronics  Microchip Technology

Poor diversification

The 3 months correlation between Renesas and Microchip is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Renesas Electronics Corp and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Renesas Electronics 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 Renesas Electronics Corp are associated (or correlated) with Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of Renesas Electronics i.e., Renesas Electronics and Microchip Technology go up and down completely randomly.

Pair Corralation between Renesas Electronics and Microchip Technology

Assuming the 90 days horizon Renesas Electronics is expected to generate 2.9 times less return on investment than Microchip Technology. In addition to that, Renesas Electronics is 1.23 times more volatile than Microchip Technology. It trades about 0.0 of its total potential returns per unit of risk. Microchip Technology is currently generating about 0.01 per unit of volatility. If you would invest  5,787  in Microchip Technology on October 22, 2024 and sell it today you would earn a total of  10.00  from holding Microchip Technology or generate 0.17% return on investment over 90 days.

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

Renesas Electronics Corp  vs.  Microchip Technology

Renesas Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Renesas Electronics and Microchip Technology

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

The idea behind Renesas Electronics Corp and Microchip Technology 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..