Correlation Between Microsoft and Zimmer Biomet

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

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

Diversification Opportunities for Microsoft and Zimmer Biomet

0.59

Correlation Coefficient

Microsoft  Zimmer Biomet

Very weak diversification

The 3 months correlation between Microsoft and Zimmer is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings 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 Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Microsoft i.e., Microsoft and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Microsoft and Zimmer Biomet

Assuming the 90 days trading horizon Microsoft is expected to generate 0.8 times more return on investment than Zimmer Biomet. However, Microsoft is 1.25 times less risky than Zimmer Biomet. It trades about -0.19 of its potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about -0.18 per unit of risk. If you would invest  42,265  in Microsoft on October 9, 2024 and sell it today you would lose (1,355) from holding Microsoft or give up 3.21% of portfolio value over 90 days.

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

Microsoft  vs.  Zimmer Biomet Holdings

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.

Zimmer Biomet Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and Zimmer Biomet

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

The idea behind Microsoft and Zimmer Biomet Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.