Correlation Between Microsoft and CHINA TELECOM

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

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

Diversification Opportunities for Microsoft and CHINA TELECOM

-0.27

Correlation Coefficient

Microsoft  CHINA TELECOM

Very good diversification

The 3 months correlation between Microsoft and CHINA is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CHINA TELECOM H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA TELECOM H 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 CHINA TELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA TELECOM H has no effect on the direction of Microsoft i.e., Microsoft and CHINA TELECOM go up and down completely randomly.

Pair Corralation between Microsoft and CHINA TELECOM

Assuming the 90 days trading horizon Microsoft is expected to generate 1.22 times more return on investment than CHINA TELECOM. However, Microsoft is 1.22 times more volatile than CHINA TELECOM H . It trades about 0.09 of its potential returns per unit of risk. CHINA TELECOM H is currently generating about 0.03 per unit of risk. If you would invest  38,568  in Microsoft on September 25, 2024 and sell it today you would earn a total of  3,342  from holding Microsoft or generate 8.67% return on investment over 90 days.

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

Microsoft  vs.  CHINA TELECOM H

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

CHINA TELECOM H

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA TELECOM H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, CHINA TELECOM is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and CHINA TELECOM

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

The idea behind Microsoft and CHINA TELECOM H 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.