Correlation Between STMicroelectronics and Microchip Technology
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics 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 STMicroelectronics and Microchip Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV ADR and Microchip Technology, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of Microchip Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Microchip Technology.
Diversification Opportunities for STMicroelectronics and Microchip Technology
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between STMicroelectronics and Microchip is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and Microchip Technology go up and down completely randomly.
Pair Corralation between STMicroelectronics and Microchip Technology
Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to generate 0.92 times more return on investment than Microchip Technology. However, STMicroelectronics NV ADR is 1.08 times less risky than Microchip Technology. It trades about -0.2 of its potential returns per unit of risk. Microchip Technology is currently generating about -0.19 per unit of risk. If you would invest 2,854 in STMicroelectronics NV ADR on August 29, 2024 and sell it today you would lose (297.00) from holding STMicroelectronics NV ADR or give up 10.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
STMicroelectronics NV ADR vs. Microchip Technology
Performance |
| Timeline |
| STMicroelectronics NV ADR |
| Microchip Technology |
STMicroelectronics and Microchip Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and Microchip Technology
The main advantage of trading using opposite STMicroelectronics and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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.| STMicroelectronics vs. NXP Semiconductors NV | STMicroelectronics vs. Analog Devices | STMicroelectronics vs. ON Semiconductor | STMicroelectronics vs. Lattice Semiconductor |
| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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