Correlation Between Xiaomi and Microsoft

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

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

Diversification Opportunities for Xiaomi and Microsoft

-0.87

Correlation Coefficient

Xiaomi  Microsoft

Pay attention - limited upside

The 3 months correlation between Xiaomi and Microsoft is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Xiaomi 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 Xiaomi 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 Xiaomi i.e., Xiaomi and Microsoft go up and down completely randomly.

Pair Corralation between Xiaomi and Microsoft

Assuming the 90 days trading horizon Xiaomi is expected to generate 3.23 times more return on investment than Microsoft. However, Xiaomi is 3.23 times more volatile than Microsoft. It trades about 0.22 of its potential returns per unit of risk. Microsoft is currently generating about -0.12 per unit of risk. If you would invest  8,390  in Xiaomi on December 24, 2024 and sell it today you would earn a total of  6,410  from holding Xiaomi or generate 76.4% return on investment over 90 days.

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

Xiaomi  vs.  Microsoft

Xiaomi

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Xiaomi displayed 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 weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Xiaomi and Microsoft

The main advantage of trading using opposite Xiaomi and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiaomi 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 Xiaomi 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.