Correlation Between Microsoft and REGAL HOTEL

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

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

Diversification Opportunities for Microsoft and REGAL HOTEL

0.86

Correlation Coefficient

Microsoft  REGAL HOTEL

Very poor diversification

The 3 months correlation between Microsoft and REGAL is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and REGAL HOTEL INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REGAL HOTEL 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 REGAL HOTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REGAL HOTEL INTL has no effect on the direction of Microsoft i.e., Microsoft and REGAL HOTEL go up and down completely randomly.

Pair Corralation between Microsoft and REGAL HOTEL

Assuming the 90 days trading horizon Microsoft is expected to generate 0.53 times more return on investment than REGAL HOTEL. However, Microsoft is 1.87 times less risky than REGAL HOTEL. It trades about -0.16 of its potential returns per unit of risk. REGAL HOTEL INTL is currently generating about -0.16 per unit of risk. If you would invest  41,762  in Microsoft on December 23, 2024 and sell it today you would lose (6,107) from holding Microsoft or give up 14.62% of portfolio value over 90 days.

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

Microsoft  vs.  REGAL HOTEL INTL

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

REGAL HOTEL INTL

Risk-Adjusted Performance

Very Weak

Over the last 90 days REGAL HOTEL INTL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and REGAL HOTEL

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

The idea behind Microsoft and REGAL HOTEL 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.