Correlation Between Microsoft and PREMIER FOODS

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

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

Diversification Opportunities for Microsoft and PREMIER FOODS

0.05

Correlation Coefficient

Microsoft  PREMIER FOODS

Significant diversification

The 3 months correlation between Microsoft and PREMIER is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PREMIER FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PREMIER FOODS 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 PREMIER FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PREMIER FOODS has no effect on the direction of Microsoft i.e., Microsoft and PREMIER FOODS go up and down completely randomly.

Pair Corralation between Microsoft and PREMIER FOODS

Assuming the 90 days trading horizon Microsoft is expected to generate 0.61 times more return on investment than PREMIER FOODS. However, Microsoft is 1.63 times less risky than PREMIER FOODS. It trades about -0.24 of its potential returns per unit of risk. PREMIER FOODS is currently generating about -0.28 per unit of risk. If you would invest  42,785  in Microsoft on October 14, 2024 and sell it today you would lose (1,605) from holding Microsoft or give up 3.75% of portfolio value over 90 days.

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

Microsoft  vs.  PREMIER FOODS

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 February 2025.

PREMIER FOODS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microsoft and PREMIER FOODS

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

The idea behind Microsoft and PREMIER FOODS 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..