Correlation Between Volkswagen and Microchip Technology
Can any of the company-specific risk be diversified away by investing in both Volkswagen 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 Volkswagen and Microchip Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and Microchip Technology, you can compare the effects of market volatilities on Volkswagen 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 Volkswagen with a short position of Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Microchip Technology.
Diversification Opportunities for Volkswagen and Microchip Technology
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Volkswagen and Microchip is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Volkswagen 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 Volkswagen AG 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 Volkswagen i.e., Volkswagen and Microchip Technology go up and down completely randomly.
Pair Corralation between Volkswagen and Microchip Technology
Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Microchip Technology. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.4 times less risky than Microchip Technology. The stock trades about -0.04 of its potential returns per unit of risk. The Microchip Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 8,290 in Microchip Technology on October 25, 2024 and sell it today you would lose (2,400) from holding Microchip Technology or give up 28.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Volkswagen AG vs. Microchip Technology
Performance |
| Timeline |
| Volkswagen AG |
| Microchip Technology |
Volkswagen and Microchip Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Microchip Technology
The main advantage of trading using opposite Volkswagen and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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.| Volkswagen vs. Golden Metal Resources | Volkswagen vs. Wheaton Precious Metals | Volkswagen vs. Summit Materials Cl | Volkswagen vs. Cornish Metals |
| Microchip Technology vs. Toyota Motor Corp | Microchip Technology vs. SoftBank Group Corp | Microchip Technology vs. OTP Bank Nyrt | Microchip Technology vs. ONEOK Inc |
Check out your portfolio center.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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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