Correlation Between Microsoft and DAIRY FARM

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

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

Diversification Opportunities for Microsoft and DAIRY FARM

0.5

Correlation Coefficient

Microsoft  DAIRY FARM

Very weak diversification

The 3 months correlation between Microsoft and DAIRY is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DAIRY FARM INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAIRY FARM INTL 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 DAIRY FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAIRY FARM INTL has no effect on the direction of Microsoft i.e., Microsoft and DAIRY FARM go up and down completely randomly.

Pair Corralation between Microsoft and DAIRY FARM

Assuming the 90 days trading horizon Microsoft is expected to generate 0.8 times more return on investment than DAIRY FARM. However, Microsoft is 1.26 times less risky than DAIRY FARM. It trades about 0.11 of its potential returns per unit of risk. DAIRY FARM INTL is currently generating about -0.2 per unit of risk. If you would invest  40,775  in Microsoft on September 27, 2024 and sell it today you would earn a total of  1,190  from holding Microsoft or generate 2.92% return on investment over 90 days.

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

Microsoft  vs.  DAIRY FARM INTL

Microsoft

Risk-Adjusted Performance

8 of 100

Modest

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

DAIRY FARM INTL

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DAIRY FARM INTL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, DAIRY FARM unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and DAIRY FARM

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

The idea behind Microsoft and DAIRY FARM INTL 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.