Correlation Between Microsoft and CAL MAINE

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

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

Diversification Opportunities for Microsoft and CAL MAINE

0.82

Correlation Coefficient

Microsoft  CAL MAINE

Very poor diversification

The 3 months correlation between Microsoft and CAL is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CAL MAINE FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAL MAINE FOODS 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 CAL MAINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAL MAINE FOODS has no effect on the direction of Microsoft i.e., Microsoft and CAL MAINE go up and down completely randomly.

Pair Corralation between Microsoft and CAL MAINE

Assuming the 90 days trading horizon Microsoft is expected to generate 76.4 times less return on investment than CAL MAINE. But when comparing it to its historical volatility, Microsoft is 1.24 times less risky than CAL MAINE. It trades about 0.0 of its potential returns per unit of risk. CAL MAINE FOODS is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,466  in CAL MAINE FOODS on September 26, 2024 and sell it today you would earn a total of  4,358  from holding CAL MAINE FOODS or generate 79.73% return on investment over 90 days.

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

Microsoft  vs.  CAL MAINE FOODS

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.

CAL MAINE FOODS

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CAL MAINE FOODS are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CAL MAINE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CAL MAINE

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

The idea behind Microsoft and CAL MAINE FOODS 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.