Correlation Between Vulcan Materials and Microchip Technology

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

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

Diversification Opportunities for Vulcan Materials and Microchip Technology

-0.63

Correlation Coefficient

Vulcan Materials  Microchip Technology

Excellent diversification

The 3 months correlation between Vulcan and Microchip is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Microchip Technology go up and down completely randomly.

Pair Corralation between Vulcan Materials and Microchip Technology

Assuming the 90 days horizon Vulcan Materials is expected to generate 1.19 times more return on investment than Microchip Technology. However, Vulcan Materials is 1.19 times more volatile than Microchip Technology Incorporated. It trades about 0.2 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about -0.02 per unit of risk. If you would invest  24,600  in Vulcan Materials on September 5, 2024 and sell it today you would earn a total of  2,600  from holding Vulcan Materials or generate 10.57% return on investment over 90 days.

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

Vulcan Materials  vs.  Microchip Technology Incorpora

Vulcan Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vulcan Materials and Microchip Technology

The main advantage of trading using opposite Vulcan Materials and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials and Microchip Technology Incorporated 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..