Correlation Between Freddie Mac and Microsoft

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

By analyzing existing cross correlation between Freddie Mac and Microsoft, you can compare the effects of market volatilities on Freddie Mac and Microsoft 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 Freddie Mac with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freddie Mac and Microsoft.

Diversification Opportunities for Freddie Mac and Microsoft

-0.33

Correlation Coefficient

Freddie Mac  Microsoft

Very good diversification

The 3 months correlation between Freddie and Microsoft is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Freddie Mac and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Freddie Mac 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 Freddie Mac are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Freddie Mac i.e., Freddie Mac and Microsoft go up and down completely randomly.

Pair Corralation between Freddie Mac and Microsoft

Assuming the 90 days trading horizon Freddie Mac is expected to generate 4.27 times more return on investment than Microsoft. However, Freddie Mac is 4.27 times more volatile than Microsoft. It trades about 0.16 of its potential returns per unit of risk. Microsoft is currently generating about -0.08 per unit of risk. If you would invest  264.00  in Freddie Mac on December 24, 2024 and sell it today you would earn a total of  246.00  from holding Freddie Mac or generate 93.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Freddie Mac  vs.  Microsoft

Freddie Mac

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freddie Mac are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Freddie Mac unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Freddie Mac and Microsoft

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

The idea behind Freddie Mac and Microsoft 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.