Correlation Between Microchip Technology and Bank of America
Can any of the company-specific risk be diversified away by investing in both Microchip Technology and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Microchip Technology and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and Bank of America.
Diversification Opportunities for Microchip Technology and Bank of America
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Microchip and Bank is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Microchip Technology i.e., Microchip Technology and Bank of America go up and down completely randomly.
Pair Corralation between Microchip Technology and Bank of America
Assuming the 90 days trading horizon Microchip Technology Incorporated is expected to under-perform the Bank of America. In addition to that, Microchip Technology is 1.83 times more volatile than Bank of America. It trades about -0.24 of its total potential returns per unit of risk. Bank of America is currently generating about -0.11 per unit of volatility. If you would invest 6,970 in Bank of America on November 5, 2024 and sell it today you would lose (253.00) from holding Bank of America or give up 3.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microchip Technology Incorpora vs. Bank of America
Performance |
| Timeline |
| Microchip Technology |
| Bank of America |
Microchip Technology and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microchip Technology and Bank of America
The main advantage of trading using opposite Microchip Technology and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.The idea behind Microchip Technology Incorporated and Bank of America 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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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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