Correlation Between Microsoft and URBAN OUTFITTERS

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

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

Diversification Opportunities for Microsoft and URBAN OUTFITTERS

0.89

Correlation Coefficient

Microsoft  URBAN OUTFITTERS

Very poor diversification

The 3 months correlation between Microsoft and URBAN is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and URBAN OUTFITTERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on URBAN OUTFITTERS 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 URBAN OUTFITTERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of URBAN OUTFITTERS has no effect on the direction of Microsoft i.e., Microsoft and URBAN OUTFITTERS go up and down completely randomly.

Pair Corralation between Microsoft and URBAN OUTFITTERS

Assuming the 90 days trading horizon Microsoft is expected to generate 3.95 times less return on investment than URBAN OUTFITTERS. But when comparing it to its historical volatility, Microsoft is 4.49 times less risky than URBAN OUTFITTERS. It trades about 0.45 of its potential returns per unit of risk. URBAN OUTFITTERS is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  3,600  in URBAN OUTFITTERS on September 20, 2024 and sell it today you would earn a total of  1,650  from holding URBAN OUTFITTERS or generate 45.83% return on investment over 90 days.

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

Microsoft  vs.  URBAN OUTFITTERS

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 unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

URBAN OUTFITTERS

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in URBAN OUTFITTERS are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, URBAN OUTFITTERS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and URBAN OUTFITTERS

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

The idea behind Microsoft and URBAN OUTFITTERS 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.