Correlation Between BBVA Banco and Microsoft

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

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

Diversification Opportunities for BBVA Banco and Microsoft

-0.79

Correlation Coefficient

BBVA Banco  Microsoft

Pay attention - limited upside

The 3 months correlation between BBVA and Microsoft is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding BBVA Banco Frances and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and BBVA Banco 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 BBVA Banco Frances 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 BBVA Banco i.e., BBVA Banco and Microsoft go up and down completely randomly.

Pair Corralation between BBVA Banco and Microsoft

Assuming the 90 days trading horizon BBVA Banco Frances is expected to generate 1.98 times more return on investment than Microsoft. However, BBVA Banco is 1.98 times more volatile than Microsoft. It trades about 0.18 of its potential returns per unit of risk. Microsoft is currently generating about -0.16 per unit of risk. If you would invest  444,500  in BBVA Banco Frances on September 1, 2024 and sell it today you would earn a total of  172,500  from holding BBVA Banco Frances or generate 38.81% return on investment over 90 days.

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

BBVA Banco Frances  vs.  Microsoft

BBVA Banco Frances

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BBVA Banco sustained solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BBVA Banco and Microsoft

The main advantage of trading using opposite BBVA Banco and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBVA Banco 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 BBVA Banco Frances 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.