Correlation Between Microsoft and Heidelberg Pharma

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

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

Diversification Opportunities for Microsoft and Heidelberg Pharma

-0.31

Correlation Coefficient

Microsoft  Heidelberg Pharma

Very good diversification

The 3 months correlation between Microsoft and Heidelberg is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Heidelberg Pharma AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Pharma 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 Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Pharma has no effect on the direction of Microsoft i.e., Microsoft and Heidelberg Pharma go up and down completely randomly.

Pair Corralation between Microsoft and Heidelberg Pharma

Assuming the 90 days trading horizon Microsoft is expected to generate 0.6 times more return on investment than Heidelberg Pharma. However, Microsoft is 1.68 times less risky than Heidelberg Pharma. It trades about 0.09 of its potential returns per unit of risk. Heidelberg Pharma AG is currently generating about -0.01 per unit of risk. If you would invest  39,433  in Microsoft on October 24, 2024 and sell it today you would earn a total of  2,912  from holding Microsoft or generate 7.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Microsoft  vs.  Heidelberg Pharma AG

Microsoft

Risk-Adjusted Performance

6 of 100

Insignificant

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

Heidelberg Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heidelberg Pharma AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Heidelberg Pharma 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 Heidelberg Pharma

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

The idea behind Microsoft and Heidelberg Pharma 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.