Correlation Between Haier Smart and Microsoft

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

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

Diversification Opportunities for Haier Smart and Microsoft

0.29

Correlation Coefficient

Haier Smart  Microsoft

Modest diversification

The 3 months correlation between Haier and Microsoft is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Haier Smart Home and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Haier Smart 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 Haier Smart Home 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 Haier Smart i.e., Haier Smart and Microsoft go up and down completely randomly.

Pair Corralation between Haier Smart and Microsoft

Assuming the 90 days trading horizon Haier Smart Home is expected to generate 1.6 times more return on investment than Microsoft. However, Haier Smart is 1.6 times more volatile than Microsoft. It trades about 0.09 of its potential returns per unit of risk. Microsoft is currently generating about 0.07 per unit of risk. If you would invest  155.00  in Haier Smart Home on August 31, 2024 and sell it today you would earn a total of  18.00  from holding Haier Smart Home or generate 11.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Haier Smart Home  vs.  Microsoft

Haier Smart Home

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Haier Smart Home are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Haier Smart may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Haier Smart and Microsoft

The main advantage of trading using opposite Haier Smart and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Haier Smart 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 Haier Smart Home 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.