Correlation Between Microsoft and Cape Lambert

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

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

Diversification Opportunities for Microsoft and Cape Lambert

0.67

Correlation Coefficient

Microsoft  Cape Lambert

Poor diversification

The 3 months correlation between Microsoft and Cape is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cape Lambert Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cape Lambert Resources 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 Cape Lambert. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cape Lambert Resources has no effect on the direction of Microsoft i.e., Microsoft and Cape Lambert go up and down completely randomly.

Pair Corralation between Microsoft and Cape Lambert

Assuming the 90 days trading horizon Microsoft is expected to generate 25.21 times less return on investment than Cape Lambert. But when comparing it to its historical volatility, Microsoft is 33.63 times less risky than Cape Lambert. It trades about 0.08 of its potential returns per unit of risk. Cape Lambert Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.14  in Cape Lambert Resources on October 6, 2024 and sell it today you would earn a total of  2.91  from holding Cape Lambert Resources or generate 2078.57% return on investment over 90 days.

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

Microsoft  vs.  Cape Lambert Resources

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cape Lambert Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cape Lambert Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cape Lambert unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Cape Lambert

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

The idea behind Microsoft and Cape Lambert Resources 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 Stocks Directory module to find actively traded stocks across global markets.