Correlation Between Microchip Technology and Synaptics Incorporated

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

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

Diversification Opportunities for Microchip Technology and Synaptics Incorporated

-0.01

Correlation Coefficient

Microchip Technology  Synaptics Incorporated

Good diversification

The 3 months correlation between Microchip and Synaptics is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Synaptics Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synaptics Incorporated 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 Synaptics Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synaptics Incorporated has no effect on the direction of Microchip Technology i.e., Microchip Technology and Synaptics Incorporated go up and down completely randomly.

Pair Corralation between Microchip Technology and Synaptics Incorporated

Given the investment horizon of 90 days Microchip Technology is expected to generate 0.71 times more return on investment than Synaptics Incorporated. However, Microchip Technology is 1.41 times less risky than Synaptics Incorporated. It trades about 0.14 of its potential returns per unit of risk. Synaptics Incorporated is currently generating about 0.07 per unit of risk. If you would invest  9,332  in Microchip Technology on March 5, 2024 and sell it today you would earn a total of  391.00  from holding Microchip Technology or generate 4.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microchip Technology  vs.  Synaptics Incorporated

Microchip Technology

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Microchip Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Synaptics Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Synaptics Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microchip Technology and Synaptics Incorporated

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

The idea behind Microchip Technology and Synaptics Incorporated 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.