Correlation Between Microsoft and ACE HARDWARE

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

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

Diversification Opportunities for Microsoft and ACE HARDWARE

-0.3

Correlation Coefficient

Microsoft  ACE HARDWARE

Very good diversification

The 3 months correlation between Microsoft and ACE is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ACE HARDWARE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACE HARDWARE 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 ACE HARDWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACE HARDWARE has no effect on the direction of Microsoft i.e., Microsoft and ACE HARDWARE go up and down completely randomly.

Pair Corralation between Microsoft and ACE HARDWARE

Assuming the 90 days trading horizon Microsoft is expected to generate 0.33 times more return on investment than ACE HARDWARE. However, Microsoft is 3.01 times less risky than ACE HARDWARE. It trades about 0.12 of its potential returns per unit of risk. ACE HARDWARE is currently generating about -0.03 per unit of risk. If you would invest  37,511  in Microsoft on October 8, 2024 and sell it today you would earn a total of  3,589  from holding Microsoft or generate 9.57% return on investment over 90 days.

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

Microsoft  vs.  ACE HARDWARE

Microsoft

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ACE HARDWARE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ACE HARDWARE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Microsoft and ACE HARDWARE

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

The idea behind Microsoft and ACE HARDWARE 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.