Correlation Between Microsoft and PNC FINL

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

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

Diversification Opportunities for Microsoft and PNC FINL

0.66

Correlation Coefficient

Microsoft  PNC FINL

Poor diversification

The 3 months correlation between Microsoft and PNC is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PNC FINL SER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC FINL SER 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 PNC FINL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC FINL SER has no effect on the direction of Microsoft i.e., Microsoft and PNC FINL go up and down completely randomly.

Pair Corralation between Microsoft and PNC FINL

Assuming the 90 days trading horizon Microsoft is expected to generate 0.75 times more return on investment than PNC FINL. However, Microsoft is 1.33 times less risky than PNC FINL. It trades about -0.19 of its potential returns per unit of risk. PNC FINL SER is currently generating about -0.24 per unit of risk. If you would invest  42,255  in Microsoft on October 9, 2024 and sell it today you would lose (1,305) from holding Microsoft or give up 3.09% of portfolio value over 90 days.

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

Microsoft  vs.  PNC FINL SER

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.

PNC FINL SER

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PNC FINL SER are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PNC FINL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and PNC FINL

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

The idea behind Microsoft and PNC FINL SER 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.