Correlation Between Microchip Technology and General Dynamics

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

Diversification Opportunities for Microchip Technology and General Dynamics

0.65

Correlation Coefficient

Microchip Technology  General Dynamics

Poor diversification

The 3 months correlation between Microchip and General is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microchip Technology Incorpora and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics 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 General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Microchip Technology i.e., Microchip Technology and General Dynamics go up and down completely randomly.

Pair Corralation between Microchip Technology and General Dynamics

Assuming the 90 days horizon Microchip Technology Incorporated is expected to generate 2.69 times more return on investment than General Dynamics. However, Microchip Technology is 2.69 times more volatile than General Dynamics. It trades about 0.22 of its potential returns per unit of risk. General Dynamics is currently generating about 0.1 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	Significant
Accuracy	98.44%
Values	Daily Returns

Microchip Technology Incorpora  vs.  General Dynamics

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.

General Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Microchip Technology and General Dynamics

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

The idea behind Microchip Technology Incorporated and General Dynamics 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.