Correlation Between Microsoft and CARSALES

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

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

Diversification Opportunities for Microsoft and CARSALES

0.66

Correlation Coefficient

Microsoft  CARSALES

Poor diversification

The 3 months correlation between Microsoft and CARSALES is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Microsoft i.e., Microsoft and CARSALES go up and down completely randomly.

Pair Corralation between Microsoft and CARSALES

Assuming the 90 days trading horizon Microsoft is expected to generate 1.76 times less return on investment than CARSALES. In addition to that, Microsoft is 1.11 times more volatile than CARSALESCOM. It trades about 0.08 of its total potential returns per unit of risk. CARSALESCOM is currently generating about 0.16 per unit of volatility. If you would invest  2,241  in CARSALESCOM on September 3, 2024 and sell it today you would earn a total of  319.00  from holding CARSALESCOM or generate 14.23% return on investment over 90 days.

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

Microsoft  vs.  CARSALESCOM

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) 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 January 2025.

CARSALESCOM

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, CARSALES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CARSALES

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

The idea behind Microsoft and CARSALESCOM 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..