Correlation Between Microchip Technology and Semtech

Can any of the company-specific risk be diversified away by investing in both Microchip Technology and Semtech 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 Semtech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microchip Technology and Semtech, you can compare the effects of market volatilities on Microchip Technology and Semtech 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 Semtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and Semtech.

Diversification Opportunities for Microchip Technology and Semtech

0.38

Correlation Coefficient

Microchip Technology  Semtech

Weak diversification

The 3 months correlation between Microchip and Semtech is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Semtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semtech 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 Semtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semtech has no effect on the direction of Microchip Technology i.e., Microchip Technology and Semtech go up and down completely randomly.

Pair Corralation between Microchip Technology and Semtech

Given the investment horizon of 90 days Microchip Technology is expected to generate 5.88 times less return on investment than Semtech. But when comparing it to its historical volatility, Microchip Technology is 1.8 times less risky than Semtech. It trades about 0.1 of its potential returns per unit of risk. Semtech is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  2,749  in Semtech on January 28, 2024 and sell it today you would earn a total of  828.00  from holding Semtech or generate 30.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microchip Technology  vs.  Semtech

Microchip Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Microchip Technology may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Semtech

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microchip Technology and Semtech

The main advantage of trading using opposite Microchip Technology and Semtech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microchip Technology position performs unexpectedly, Semtech 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 Semtech will offset losses from the drop in Semtech's long position.

The idea behind Microchip Technology and Semtech 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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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.