Correlation Between Microchip Technology and BASF SE

Can any of the company-specific risk be diversified away by investing in both Microchip Technology and BASF SE 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 BASF SE 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 BASF SE, you can compare the effects of market volatilities on Microchip Technology and BASF SE 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 BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microchip Technology and BASF SE.

Diversification Opportunities for Microchip Technology and BASF SE

0.56

Correlation Coefficient

Microchip Technology  BASF SE

Very weak diversification

The 3 months correlation between Microchip and BASF is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE 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 BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of Microchip Technology i.e., Microchip Technology and BASF SE go up and down completely randomly.

Pair Corralation between Microchip Technology and BASF SE

Assuming the 90 days horizon Microchip Technology Incorporated is expected to under-perform the BASF SE. In addition to that, Microchip Technology is 1.17 times more volatile than BASF SE. It trades about -0.1 of its total potential returns per unit of risk. BASF SE is currently generating about 0.04 per unit of volatility. If you would invest  1,040  in BASF SE on September 13, 2024 and sell it today you would earn a total of  40.00  from holding BASF SE or generate 3.85% return on investment over 90 days.

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

Microchip Technology Incorpora  vs.  BASF SE

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

BASF SE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microchip Technology and BASF SE

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

The idea behind Microchip Technology Incorporated and BASF SE 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.