Correlation Between Power Integrations and Microchip Technology

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

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

Diversification Opportunities for Power Integrations and Microchip Technology

0.02

Correlation Coefficient

Power Integrations  Microchip Technology

Significant diversification

The 3 months correlation between Power and Microchip is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Power Integrations and Microchip Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Power Integrations 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 Power Integrations 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 Power Integrations i.e., Power Integrations and Microchip Technology go up and down completely randomly.

Pair Corralation between Power Integrations and Microchip Technology

Given the investment horizon of 90 days Power Integrations is expected to generate 1.02 times more return on investment than Microchip Technology. However, Power Integrations is 1.02 times more volatile than Microchip Technology. It trades about 0.05 of its potential returns per unit of risk. Microchip Technology is currently generating about -0.07 per unit of risk. If you would invest  6,217  in Power Integrations on September 1, 2024 and sell it today you would earn a total of  334.00  from holding Power Integrations or generate 5.37% return on investment over 90 days.

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

Power Integrations  vs.  Microchip Technology

Power Integrations

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Integrations are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Power Integrations may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Power Integrations and Microchip Technology

The main advantage of trading using opposite Power Integrations and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Integrations 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.

The idea behind Power Integrations and Microchip Technology 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.