Correlation Between Microsoft and HEALTHSTREAM (HL5SG)

Can any of the company-specific risk be diversified away by investing in both Microsoft and HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and HEALTHSTREAM, you can compare the effects of market volatilities on Microsoft and HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG). Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and HEALTHSTREAM (HL5SG).

Diversification Opportunities for Microsoft and HEALTHSTREAM (HL5SG)

0.49

Correlation Coefficient

Microsoft  HEALTHSTREAM (HL5SG)

Very weak diversification

The 3 months correlation between Microsoft and HEALTHSTREAM is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HEALTHSTREAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEALTHSTREAM (HL5SG) has no effect on the direction of Microsoft i.e., Microsoft and HEALTHSTREAM (HL5SG) go up and down completely randomly.

Pair Corralation between Microsoft and HEALTHSTREAM (HL5SG)

Assuming the 90 days trading horizon Microsoft is expected to under-perform the HEALTHSTREAM (HL5SG). In addition to that, Microsoft is 1.18 times more volatile than HEALTHSTREAM. It trades about -0.11 of its total potential returns per unit of risk. HEALTHSTREAM is currently generating about -0.07 per unit of volatility. If you would invest  3,057  in HEALTHSTREAM on December 26, 2024 and sell it today you would lose (177.00) from holding HEALTHSTREAM or give up 5.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  HEALTHSTREAM

Microsoft

Risk-Adjusted Performance

Very Weak

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

HEALTHSTREAM (HL5SG)

Risk-Adjusted Performance

Very Weak

Over the last 90 days HEALTHSTREAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HEALTHSTREAM (HL5SG) is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and HEALTHSTREAM (HL5SG)

The main advantage of trading using opposite Microsoft and HEALTHSTREAM (HL5SG) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, HEALTHSTREAM (HL5SG) 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 HEALTHSTREAM (HL5SG) will offset losses from the drop in HEALTHSTREAM (HL5SG)'s long position.

The idea behind Microsoft and HEALTHSTREAM 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.