Correlation Between Microchip Technology and Hormel Foods
Can any of the company-specific risk be diversified away by investing in both Microchip Technology and Hormel Foods 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 Hormel Foods 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 Hormel Foods, you can compare the effects of market volatilities on Microchip Technology and Hormel Foods 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 Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and Hormel Foods.
Diversification Opportunities for Microchip Technology and Hormel Foods
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Microchip and Hormel is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Microchip Technology i.e., Microchip Technology and Hormel Foods go up and down completely randomly.
Pair Corralation between Microchip Technology and Hormel Foods
Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the Hormel Foods. In addition to that, Microchip Technology is 1.61 times more volatile than Hormel Foods. It trades about -0.04 of its total potential returns per unit of risk. Hormel Foods is currently generating about 0.04 per unit of volatility. If you would invest 2,785 in Hormel Foods on September 14, 2024 and sell it today you would earn a total of 413.00 from holding Hormel Foods or generate 14.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microchip Technology Incorpora vs. Hormel Foods
Performance |
| Timeline |
| Microchip Technology |
| Hormel Foods |
Microchip Technology and Hormel Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microchip Technology and Hormel Foods
The main advantage of trading using opposite Microchip Technology and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, Hormel Foods 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 Hormel Foods will offset losses from the drop in Hormel Foods' long position.| Microchip Technology vs. Lion One Metals | Microchip Technology vs. PSI Software AG | Microchip Technology vs. Magic Software Enterprises | Microchip Technology vs. ATOSS SOFTWARE |
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