Correlation Between Microsoft and Heidelberg Materials

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

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

Diversification Opportunities for Microsoft and Heidelberg Materials

0.83

Correlation Coefficient

Microsoft  Heidelberg Materials

Very poor diversification

The 3 months correlation between Microsoft and Heidelberg is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials 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 Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of Microsoft i.e., Microsoft and Heidelberg Materials go up and down completely randomly.

Pair Corralation between Microsoft and Heidelberg Materials

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Heidelberg Materials. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.56 times less risky than Heidelberg Materials. The stock trades about -0.19 of its potential returns per unit of risk. The Heidelberg Materials AG is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12,225  in Heidelberg Materials AG on October 10, 2024 and sell it today you would lose (25.00) from holding Heidelberg Materials AG or give up 0.2% of portfolio value over 90 days.

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

Microsoft  vs.  Heidelberg Materials AG

Microsoft

Risk-Adjusted Performance

7 of 100

OK

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

Heidelberg Materials

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Heidelberg Materials exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Heidelberg Materials

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

The idea behind Microsoft and Heidelberg Materials AG 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.