Correlation Between Microchip Technology and Teradyne

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

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

Diversification Opportunities for Microchip Technology and Teradyne

0.82

Correlation Coefficient

Microchip Technology  Teradyne

Very poor diversification

The 3 months correlation between Microchip and Teradyne is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Microchip Technology i.e., Microchip Technology and Teradyne go up and down completely randomly.

Pair Corralation between Microchip Technology and Teradyne

Given the investment horizon of 90 days Microchip Technology is expected to generate 0.83 times more return on investment than Teradyne. However, Microchip Technology is 1.2 times less risky than Teradyne. It trades about -0.11 of its potential returns per unit of risk. Teradyne is currently generating about -0.12 per unit of risk. If you would invest  8,160  in Microchip Technology on August 30, 2024 and sell it today you would lose (1,373) from holding Microchip Technology or give up 16.83% of portfolio value over 90 days.

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

Microchip Technology  vs.  Teradyne

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 weak performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Microchip Technology and Teradyne

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

The idea behind Microchip Technology and Teradyne 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.