Correlation Between Microsoft and ELMOS SEMICONDUCTOR

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

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

Diversification Opportunities for Microsoft and ELMOS SEMICONDUCTOR

0.44

Correlation Coefficient

Microsoft  ELMOS SEMICONDUCTOR

Very weak diversification

The 3 months correlation between Microsoft and ELMOS is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ELMOS SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELMOS SEMICONDUCTOR 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 ELMOS SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELMOS SEMICONDUCTOR has no effect on the direction of Microsoft i.e., Microsoft and ELMOS SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between Microsoft and ELMOS SEMICONDUCTOR

Assuming the 90 days trading horizon Microsoft is expected to under-perform the ELMOS SEMICONDUCTOR. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.33 times less risky than ELMOS SEMICONDUCTOR. The stock trades about -0.29 of its potential returns per unit of risk. The ELMOS SEMICONDUCTOR is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,770  in ELMOS SEMICONDUCTOR on October 15, 2024 and sell it today you would earn a total of  1,070  from holding ELMOS SEMICONDUCTOR or generate 15.81% return on investment over 90 days.

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

Microsoft  vs.  ELMOS SEMICONDUCTOR

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

ELMOS SEMICONDUCTOR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELMOS SEMICONDUCTOR 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, ELMOS SEMICONDUCTOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ELMOS SEMICONDUCTOR

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

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