Correlation Between Microsoft and FTC SOLAR

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

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

Diversification Opportunities for Microsoft and FTC SOLAR

-0.7

Correlation Coefficient

Microsoft  FTC SOLAR

Excellent diversification

The 3 months correlation between Microsoft and FTC is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FTC SOLAR INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FTC SOLAR INC 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 FTC SOLAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FTC SOLAR INC has no effect on the direction of Microsoft i.e., Microsoft and FTC SOLAR go up and down completely randomly.

Pair Corralation between Microsoft and FTC SOLAR

Assuming the 90 days trading horizon Microsoft is expected to generate 2.91 times less return on investment than FTC SOLAR. But when comparing it to its historical volatility, Microsoft is 11.22 times less risky than FTC SOLAR. It trades about 0.09 of its potential returns per unit of risk. FTC SOLAR INC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,192  in FTC SOLAR INC on September 26, 2024 and sell it today you would lose (922.00) from holding FTC SOLAR INC or give up 77.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

Microsoft  vs.  FTC SOLAR INC

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

FTC SOLAR INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FTC SOLAR INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and FTC SOLAR

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

The idea behind Microsoft and FTC SOLAR INC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.