Correlation Between Amazon and Microchip Technology
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Microchip Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Microchip Technology, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Microchip Technology.
Diversification Opportunities for Amazon and Microchip Technology
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Amazon and Microchip is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Microchip Technology go up and down completely randomly.
Pair Corralation between Amazon and Microchip Technology
Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Microchip Technology. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.92 times less risky than Microchip Technology. The stock trades about -0.27 of its potential returns per unit of risk. The Microchip Technology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,680 in Microchip Technology on November 28, 2024 and sell it today you would earn a total of 297.00 from holding Microchip Technology or generate 5.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amazon Inc vs. Microchip Technology
Performance |
| Timeline |
| Amazon Inc |
| Microchip Technology |
Amazon and Microchip Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Microchip Technology
The main advantage of trading using opposite Amazon and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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.| Microchip Technology vs. Texas Instruments Incorporated | Microchip Technology vs. ON Semiconductor | Microchip Technology vs. Analog Devices | Microchip Technology vs. Qorvo 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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