Correlation Between Microsoft and CDL INVESTMENT

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

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

Diversification Opportunities for Microsoft and CDL INVESTMENT

0.39

Correlation Coefficient

Microsoft  CDL INVESTMENT

Weak diversification

The 3 months correlation between Microsoft and CDL is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CDL INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDL INVESTMENT 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 CDL INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDL INVESTMENT has no effect on the direction of Microsoft i.e., Microsoft and CDL INVESTMENT go up and down completely randomly.

Pair Corralation between Microsoft and CDL INVESTMENT

Assuming the 90 days trading horizon Microsoft is expected to generate 24.15 times less return on investment than CDL INVESTMENT. But when comparing it to its historical volatility, Microsoft is 1.49 times less risky than CDL INVESTMENT. It trades about 0.0 of its potential returns per unit of risk. CDL INVESTMENT is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  40.00  in CDL INVESTMENT on September 26, 2024 and sell it today you would earn a total of  4.00  from holding CDL INVESTMENT or generate 10.0% return on investment over 90 days.

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

Microsoft  vs.  CDL INVESTMENT

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 uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CDL INVESTMENT

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microsoft and CDL INVESTMENT

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

The idea behind Microsoft and CDL INVESTMENT 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.