Correlation Between Microsoft and AURUBIS

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

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

Diversification Opportunities for Microsoft and AURUBIS

0.72

Correlation Coefficient

Microsoft  AURUBIS

Poor diversification

The 3 months correlation between Microsoft and AURUBIS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and AURUBIS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AURUBIS 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 AURUBIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AURUBIS has no effect on the direction of Microsoft i.e., Microsoft and AURUBIS go up and down completely randomly.

Pair Corralation between Microsoft and AURUBIS

Assuming the 90 days trading horizon Microsoft is expected to generate 0.71 times more return on investment than AURUBIS. However, Microsoft is 1.4 times less risky than AURUBIS. It trades about -0.14 of its potential returns per unit of risk. AURUBIS is currently generating about -0.48 per unit of risk. If you would invest  42,255  in Microsoft on October 9, 2024 and sell it today you would lose (995.00) from holding Microsoft or give up 2.35% of portfolio value over 90 days.

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

Microsoft  vs.  AURUBIS

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.

AURUBIS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AURUBIS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, AURUBIS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and AURUBIS

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

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