Correlation Between Microsoft and CEOTRONICS

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

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

Diversification Opportunities for Microsoft and CEOTRONICS

0.69

Correlation Coefficient

Microsoft  CEOTRONICS

Poor diversification

The 3 months correlation between Microsoft and CEOTRONICS is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CEOTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEOTRONICS 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 CEOTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEOTRONICS has no effect on the direction of Microsoft i.e., Microsoft and CEOTRONICS go up and down completely randomly.

Pair Corralation between Microsoft and CEOTRONICS

Assuming the 90 days trading horizon Microsoft is expected to generate 4.22 times less return on investment than CEOTRONICS. But when comparing it to its historical volatility, Microsoft is 4.47 times less risky than CEOTRONICS. It trades about 0.13 of its potential returns per unit of risk. CEOTRONICS is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  530.00  in CEOTRONICS on September 27, 2024 and sell it today you would earn a total of  55.00  from holding CEOTRONICS or generate 10.38% return on investment over 90 days.

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

Microsoft  vs.  CEOTRONICS

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CEOTRONICS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEOTRONICS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CEOTRONICS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and CEOTRONICS

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

The idea behind Microsoft and CEOTRONICS 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.