Correlation Between Microsoft and DBS GROUP

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

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

Diversification Opportunities for Microsoft and DBS GROUP

0.83

Correlation Coefficient

Microsoft  DBS GROUP

Very poor diversification

The 3 months correlation between Microsoft and DBS is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DBS GROUP HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DBS GROUP HLDGS 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 DBS GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DBS GROUP HLDGS has no effect on the direction of Microsoft i.e., Microsoft and DBS GROUP go up and down completely randomly.

Pair Corralation between Microsoft and DBS GROUP

Assuming the 90 days trading horizon Microsoft is expected to generate 1.39 times more return on investment than DBS GROUP. However, Microsoft is 1.39 times more volatile than DBS GROUP HLDGS. It trades about 0.1 of its potential returns per unit of risk. DBS GROUP HLDGS is currently generating about 0.1 per unit of risk. If you would invest  21,509  in Microsoft on October 9, 2024 and sell it today you would earn a total of  19,476  from holding Microsoft or generate 90.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  DBS GROUP HLDGS

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 comparatively fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

DBS GROUP HLDGS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DBS GROUP HLDGS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, DBS GROUP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and DBS GROUP

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

The idea behind Microsoft and DBS GROUP HLDGS 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.