Correlation Between Microchip Technology and Federal Agricultural

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

Diversification Opportunities for Microchip Technology and Federal Agricultural

0.4

Correlation Coefficient

Microchip Technology  Federal Agricultural

Very weak diversification

The 3 months correlation between Microchip and Federal is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Microchip Technology i.e., Microchip Technology and Federal Agricultural go up and down completely randomly.

Pair Corralation between Microchip Technology and Federal Agricultural

Assuming the 90 days horizon Microchip Technology Incorporated is expected to generate 1.46 times more return on investment than Federal Agricultural. However, Microchip Technology is 1.46 times more volatile than Federal Agricultural Mortgage. It trades about 0.22 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.02 per unit of risk. 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microchip Technology Incorpora  vs.  Federal Agricultural Mortgage

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.

Federal Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Federal Agricultural is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microchip Technology and Federal Agricultural

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

The idea behind Microchip Technology Incorporated and Federal Agricultural Mortgage 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.