Correlation Between Microsoft and DATANG INTL

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

By analyzing existing cross correlation between Microsoft and DATANG INTL POW, you can compare the effects of market volatilities on Microsoft and DATANG INTL 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 DATANG INTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and DATANG INTL.

Diversification Opportunities for Microsoft and DATANG INTL

-0.22

Correlation Coefficient

Microsoft  DATANG INTL

Very good diversification

The 3 months correlation between Microsoft and DATANG is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DATANG INTL POW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATANG INTL POW 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 DATANG INTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATANG INTL POW has no effect on the direction of Microsoft i.e., Microsoft and DATANG INTL go up and down completely randomly.

Pair Corralation between Microsoft and DATANG INTL

Assuming the 90 days trading horizon Microsoft is expected to generate 1.72 times less return on investment than DATANG INTL. But when comparing it to its historical volatility, Microsoft is 3.8 times less risky than DATANG INTL. It trades about 0.19 of its potential returns per unit of risk. DATANG INTL POW is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  16.00  in DATANG INTL POW on September 27, 2024 and sell it today you would earn a total of  1.00  from holding DATANG INTL POW or generate 6.25% return on investment over 90 days.

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

Microsoft  vs.  DATANG INTL POW

Microsoft

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) 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 January 2025.

DATANG INTL POW

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DATANG INTL POW are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, DATANG INTL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and DATANG INTL

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

The idea behind Microsoft and DATANG INTL POW 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.