Correlation Between Microsoft and Medical Properties

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

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

Diversification Opportunities for Microsoft and Medical Properties

-0.31

Correlation Coefficient

Microsoft  Medical Properties

Very good diversification

The 3 months correlation between Microsoft and Medical is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Medical Properties Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Properties Trust 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 Medical Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Properties Trust has no effect on the direction of Microsoft i.e., Microsoft and Medical Properties go up and down completely randomly.

Pair Corralation between Microsoft and Medical Properties

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Medical Properties. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.89 times less risky than Medical Properties. The stock trades about -0.2 of its potential returns per unit of risk. The Medical Properties Trust is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  383.00  in Medical Properties Trust on October 10, 2024 and sell it today you would earn a total of  2.00  from holding Medical Properties Trust or generate 0.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Microsoft  vs.  Medical Properties Trust

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.

Medical Properties Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Properties Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile 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 Medical Properties

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

The idea behind Microsoft and Medical Properties Trust 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.