Correlation Between Microsoft and WESTERN PER

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

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

Diversification Opportunities for Microsoft and WESTERN PER

-0.26

Correlation Coefficient

Microsoft  WESTERN PER

Very good diversification

The 3 months correlation between Microsoft and WESTERN is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WESTERN PER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN PER and Microsoft 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 Microsoft are associated (or correlated) with WESTERN PER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN PER has no effect on the direction of Microsoft i.e., Microsoft and WESTERN PER go up and down completely randomly.

Pair Corralation between Microsoft and WESTERN PER

Assuming the 90 days trading horizon Microsoft is expected to generate 0.52 times more return on investment than WESTERN PER. However, Microsoft is 1.93 times less risky than WESTERN PER. It trades about 0.09 of its potential returns per unit of risk. WESTERN PER is currently generating about -0.03 per unit of risk. If you would invest  39,433  in Microsoft on October 24, 2024 and sell it today you would earn a total of  2,912  from holding Microsoft or generate 7.38% return on investment over 90 days.

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

Microsoft  vs.  WESTERN PER

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

WESTERN PER

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WESTERN PER has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, WESTERN PER is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and WESTERN PER

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

The idea behind Microsoft and WESTERN PER 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.