Correlation Between Microsoft and Fair Isaac

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

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

Diversification Opportunities for Microsoft and Fair Isaac

0.79

Correlation Coefficient

Microsoft  Fair Isaac

Poor diversification

The 3 months correlation between Microsoft and Fair is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Fair Isaac Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Isaac Corp 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 Fair Isaac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Isaac Corp has no effect on the direction of Microsoft i.e., Microsoft and Fair Isaac go up and down completely randomly.

Pair Corralation between Microsoft and Fair Isaac

Assuming the 90 days trading horizon Microsoft is expected to generate 3.12 times less return on investment than Fair Isaac. But when comparing it to its historical volatility, Microsoft is 1.45 times less risky than Fair Isaac. It trades about 0.13 of its potential returns per unit of risk. Fair Isaac Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  157,100  in Fair Isaac Corp on September 5, 2024 and sell it today you would earn a total of  65,000  from holding Fair Isaac Corp or generate 41.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  Fair Isaac Corp

Microsoft

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 10 (%) 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.

Fair Isaac Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Isaac Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fair Isaac unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Fair Isaac

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

The idea behind Microsoft and Fair Isaac Corp 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.