Correlation Between Retail Estates and Microchip Technology

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

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

Diversification Opportunities for Retail Estates and Microchip Technology

0.85

Correlation Coefficient

Retail Estates  Microchip Technology

Very poor diversification

The 3 months correlation between Retail and Microchip is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology and Retail Estates 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 Retail Estates NV 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 Retail Estates i.e., Retail Estates and Microchip Technology go up and down completely randomly.

Pair Corralation between Retail Estates and Microchip Technology

Assuming the 90 days horizon Retail Estates is expected to generate 5.99 times less return on investment than Microchip Technology. But when comparing it to its historical volatility, Retail Estates NV is 3.4 times less risky than Microchip Technology. It trades about 0.16 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,536  in Microchip Technology Incorporated on April 21, 2025 and sell it today you would earn a total of  2,871  from holding Microchip Technology Incorporated or generate 81.19% return on investment over 90 days.

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

Retail Estates NV  vs.  Microchip Technology Incorpora

Retail Estates NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Estates NV are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Retail Estates may actually be approaching a critical reversion point that can send shares even higher in August 2025.

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 22 (%) 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 Retail Estates and Microchip Technology

The main advantage of trading using opposite Retail Estates and Microchip Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retail Estates 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 Retail Estates NV 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.