Correlation Between Microsoft and Heidelberg Materials

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

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

Diversification Opportunities for Microsoft and Heidelberg Materials

0.75

Correlation Coefficient

Microsoft  Heidelberg Materials

Poor diversification

The 3 months correlation between Microsoft and Heidelberg is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials 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 Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of Microsoft i.e., Microsoft and Heidelberg Materials go up and down completely randomly.

Pair Corralation between Microsoft and Heidelberg Materials

Assuming the 90 days trading horizon Microsoft is expected to generate 2.15 times less return on investment than Heidelberg Materials. But when comparing it to its historical volatility, Microsoft is 1.16 times less risky than Heidelberg Materials. It trades about 0.06 of its potential returns per unit of risk. Heidelberg Materials AG is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,644  in Heidelberg Materials AG on October 24, 2024 and sell it today you would earn a total of  6,601  from holding Heidelberg Materials AG or generate 99.35% return on investment over 90 days.

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

Microsoft  vs.  Heidelberg Materials AG

Microsoft

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Heidelberg Materials

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Heidelberg Materials exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Heidelberg Materials

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

The idea behind Microsoft and Heidelberg Materials AG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.