Correlation Between Microchip Technology and Spring Valley

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

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

Diversification Opportunities for Microchip Technology and Spring Valley

0.72

Correlation Coefficient

Microchip Technology  Spring Valley

Poor diversification

The 3 months correlation between Microchip and Spring is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Spring Valley Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Valley Acquisition 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 Spring Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spring Valley Acquisition has no effect on the direction of Microchip Technology i.e., Microchip Technology and Spring Valley go up and down completely randomly.

Pair Corralation between Microchip Technology and Spring Valley

Given the investment horizon of 90 days Microchip Technology is expected to generate 19.11 times more return on investment than Spring Valley. However, Microchip Technology is 19.11 times more volatile than Spring Valley Acquisition. It trades about 0.06 of its potential returns per unit of risk. Spring Valley Acquisition is currently generating about 0.25 per unit of risk. If you would invest  8,793  in Microchip Technology on March 20, 2024 and sell it today you would earn a total of  552.00  from holding Microchip Technology or generate 6.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	82.54%
Values	Daily Returns

Microchip Technology  vs.  Spring Valley Acquisition

Microchip Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical indicators, Microchip Technology may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Spring Valley Acquisition

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Valley Acquisition are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Spring Valley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microchip Technology and Spring Valley

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

The idea behind Microchip Technology and Spring Valley Acquisition 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.