Correlation Between Microsoft and FEMALE HEALTH

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

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

Diversification Opportunities for Microsoft and FEMALE HEALTH

0.41

Correlation Coefficient

Microsoft  FEMALE HEALTH

Very weak diversification

The 3 months correlation between Microsoft and FEMALE is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FEMALE HEALTH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEMALE HEALTH 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 FEMALE HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEMALE HEALTH has no effect on the direction of Microsoft i.e., Microsoft and FEMALE HEALTH go up and down completely randomly.

Pair Corralation between Microsoft and FEMALE HEALTH

Assuming the 90 days trading horizon Microsoft is expected to generate 52.41 times less return on investment than FEMALE HEALTH. But when comparing it to its historical volatility, Microsoft is 5.63 times less risky than FEMALE HEALTH. It trades about 0.0 of its potential returns per unit of risk. FEMALE HEALTH is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  55.00  in FEMALE HEALTH on November 19, 2024 and sell it today you would lose (5.00) from holding FEMALE HEALTH or give up 9.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  FEMALE HEALTH

Microsoft

Risk-Adjusted Performance

Very Weak

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

FEMALE HEALTH

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FEMALE HEALTH are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, FEMALE HEALTH exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and FEMALE HEALTH

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

The idea behind Microsoft and FEMALE HEALTH 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.