Correlation Between Microchip Technology and KLA Tencor
Can any of the company-specific risk be diversified away by investing in both Microchip Technology and KLA Tencor 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 KLA Tencor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microchip Technology and KLA Tencor, you can compare the effects of market volatilities on Microchip Technology and KLA Tencor 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 KLA Tencor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and KLA Tencor.
Diversification Opportunities for Microchip Technology and KLA Tencor
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Microchip and KLA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and KLA Tencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Tencor 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 are associated (or correlated) with KLA Tencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Tencor has no effect on the direction of Microchip Technology i.e., Microchip Technology and KLA Tencor go up and down completely randomly.
Pair Corralation between Microchip Technology and KLA Tencor
Given the investment horizon of 90 days Microchip Technology is expected to under-perform the KLA Tencor. In addition to that, Microchip Technology is 1.32 times more volatile than KLA Tencor. It trades about -0.25 of its total potential returns per unit of risk. KLA Tencor is currently generating about -0.21 per unit of volatility. If you would invest 69,430 in KLA Tencor on August 30, 2024 and sell it today you would lose (6,216) from holding KLA Tencor or give up 8.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microchip Technology vs. KLA Tencor
Performance |
| Timeline |
| Microchip Technology |
| KLA Tencor |
Microchip Technology and KLA Tencor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microchip Technology and KLA Tencor
The main advantage of trading using opposite Microchip Technology and KLA Tencor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, KLA Tencor 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 KLA Tencor will offset losses from the drop in KLA Tencor's long position.| Microchip Technology vs. First Solar | Microchip Technology vs. Sunrun Inc | Microchip Technology vs. Canadian Solar | Microchip Technology vs. SolarEdge Technologies |
| KLA Tencor vs. First Solar | KLA Tencor vs. Sunrun Inc | KLA Tencor vs. Canadian Solar | KLA Tencor vs. SolarEdge Technologies |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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