Correlation Between Microsoft and Rock Tech

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

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

Diversification Opportunities for Microsoft and Rock Tech

0.23

Correlation Coefficient

Microsoft  Rock Tech

Modest diversification

The 3 months correlation between Microsoft and Rock is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rock Tech Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rock Tech Lithium 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 Rock Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rock Tech Lithium has no effect on the direction of Microsoft i.e., Microsoft and Rock Tech go up and down completely randomly.

Pair Corralation between Microsoft and Rock Tech

Assuming the 90 days trading horizon Microsoft is expected to under-perform the Rock Tech. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.79 times less risky than Rock Tech. The stock trades about -0.16 of its potential returns per unit of risk. The Rock Tech Lithium is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  58.00  in Rock Tech Lithium on December 23, 2024 and sell it today you would earn a total of  5.00  from holding Rock Tech Lithium or generate 8.62% return on investment over 90 days.

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

Microsoft  vs.  Rock Tech Lithium

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Rock Tech Lithium

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rock Tech Lithium are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Rock Tech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Rock Tech

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

The idea behind Microsoft and Rock Tech Lithium 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 Transaction History module to view history of all your transactions and understand their impact on performance.