Correlation Between Horseshoe Metals and Microchip Technology

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

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

Diversification Opportunities for Horseshoe Metals and Microchip Technology

0.24

Correlation Coefficient

Horseshoe Metals  Microchip Technology

Modest diversification

The 3 months correlation between Horseshoe and Microchip is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Horseshoe Metals Limited and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Horseshoe Metals 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 Horseshoe Metals Limited 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 Horseshoe Metals i.e., Horseshoe Metals and Microchip Technology go up and down completely randomly.

Pair Corralation between Horseshoe Metals and Microchip Technology

Assuming the 90 days trading horizon Horseshoe Metals Limited is expected to generate 2.6 times more return on investment than Microchip Technology. However, Horseshoe Metals is 2.6 times more volatile than Microchip Technology Incorporated. It trades about 0.14 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about 0.25 per unit of risk. If you would invest  0.60  in Horseshoe Metals Limited on March 3, 2025 and sell it today you would earn a total of  0.15  from holding Horseshoe Metals Limited or generate 25.0% return on investment over 90 days.

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

Horseshoe Metals Limited  vs.  Microchip Technology Incorpora

Horseshoe Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Horseshoe Metals Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Horseshoe Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microchip Technology

Risk-Adjusted Performance

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 nearly stable basic indicators, Microchip Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Horseshoe Metals and Microchip Technology

The main advantage of trading using opposite Horseshoe Metals and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Horseshoe Metals 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 Horseshoe Metals Limited and Microchip Technology 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.