Correlation Between Microfriend and Snet Systems

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

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

Diversification Opportunities for Microfriend and Snet Systems

-0.68

Correlation Coefficient

Microfriend  Snet Systems

Excellent diversification

The 3 months correlation between Microfriend and Snet is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Snet systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snet systems and Microfriend 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 Microfriend are associated (or correlated) with Snet Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snet systems has no effect on the direction of Microfriend i.e., Microfriend and Snet Systems go up and down completely randomly.

Pair Corralation between Microfriend and Snet Systems

Assuming the 90 days trading horizon Microfriend is expected to under-perform the Snet Systems. But the stock apears to be less risky and, when comparing its historical volatility, Microfriend is 1.13 times less risky than Snet Systems. The stock trades about -0.16 of its potential returns per unit of risk. The Snet systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  368,589  in Snet systems on October 7, 2024 and sell it today you would earn a total of  54,411  from holding Snet systems or generate 14.76% return on investment over 90 days.

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

Microfriend  vs.  Snet systems

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Snet systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Snet systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Snet Systems sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microfriend and Snet Systems

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

The idea behind Microfriend and Snet systems 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.