Correlation Between COSTCO WHOLESALE and Microchip Technology

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

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

Diversification Opportunities for COSTCO WHOLESALE and Microchip Technology

-0.25

Correlation Coefficient

COSTCO WHOLESALE  Microchip Technology

Very good diversification

The 3 months correlation between COSTCO and Microchip is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding COSTCO WHOLESALE CDR and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and COSTCO WHOLESALE 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 COSTCO WHOLESALE CDR 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 COSTCO WHOLESALE i.e., COSTCO WHOLESALE and Microchip Technology go up and down completely randomly.

Pair Corralation between COSTCO WHOLESALE and Microchip Technology

Assuming the 90 days trading horizon COSTCO WHOLESALE CDR is expected to under-perform the Microchip Technology. But the stock apears to be less risky and, when comparing its historical volatility, COSTCO WHOLESALE CDR is 2.21 times less risky than Microchip Technology. The stock trades about -0.04 of its potential returns per unit of risk. The Microchip Technology Incorporated is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,095  in Microchip Technology Incorporated on April 24, 2025 and sell it today you would earn a total of  2,104  from holding Microchip Technology Incorporated or generate 51.38% return on investment over 90 days.

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

COSTCO WHOLESALE CDR  vs.  Microchip Technology Incorpora

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days COSTCO WHOLESALE CDR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, COSTCO WHOLESALE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Microchip Technology

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microchip Technology Incorporated are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Microchip Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COSTCO WHOLESALE and Microchip Technology

The main advantage of trading using opposite COSTCO WHOLESALE and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COSTCO WHOLESALE 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 COSTCO WHOLESALE CDR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.