Correlation Between BASE and MicroStrategy Incorporated

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

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

Diversification Opportunities for BASE and MicroStrategy Incorporated

0.03

Correlation Coefficient

BASE  MicroStrategy Incorporated

Significant diversification

The 3 months correlation between BASE and MicroStrategy is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding BASE Inc and MicroStrategy Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroStrategy Incorporated and BASE 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 BASE Inc are associated (or correlated) with MicroStrategy Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroStrategy Incorporated has no effect on the direction of BASE i.e., BASE and MicroStrategy Incorporated go up and down completely randomly.

Pair Corralation between BASE and MicroStrategy Incorporated

Assuming the 90 days horizon BASE is expected to generate 6.57 times less return on investment than MicroStrategy Incorporated. But when comparing it to its historical volatility, BASE Inc is 1.57 times less risky than MicroStrategy Incorporated. It trades about 0.03 of its potential returns per unit of risk. MicroStrategy Incorporated is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,059  in MicroStrategy Incorporated on September 23, 2024 and sell it today you would earn a total of  31,361  from holding MicroStrategy Incorporated or generate 619.91% return on investment over 90 days.

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

BASE Inc  vs.  MicroStrategy Incorporated

BASE Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BASE Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, BASE reported solid returns over the last few months and may actually be approaching a breakup point.

MicroStrategy Incorporated

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroStrategy Incorporated are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, MicroStrategy Incorporated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BASE and MicroStrategy Incorporated

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

The idea behind BASE Inc and MicroStrategy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.