Correlation Between Microsoft Corp and Amazon CDR

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

By analyzing existing cross correlation between Microsoft Corp CDR and Amazon CDR, you can compare the effects of market volatilities on Microsoft Corp and Amazon CDR 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 Corp with a short position of Amazon CDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Amazon CDR.

Diversification Opportunities for Microsoft Corp and Amazon CDR

0.2

Correlation Coefficient

Microsoft Corp  Amazon CDR

Modest diversification

The 3 months correlation between Microsoft and Amazon is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Amazon CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon CDR and Microsoft Corp 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 Corp CDR are associated (or correlated) with Amazon CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon CDR has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Amazon CDR go up and down completely randomly.

Pair Corralation between Microsoft Corp and Amazon CDR

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the Amazon CDR. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft Corp CDR is 1.15 times less risky than Amazon CDR. The stock trades about -0.01 of its potential returns per unit of risk. The Amazon CDR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,439  in Amazon CDR on November 19, 2024 and sell it today you would earn a total of  291.00  from holding Amazon CDR or generate 11.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Microsoft Corp CDR  vs.  Amazon CDR

Microsoft Corp CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Amazon CDR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon CDR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Amazon CDR may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Microsoft Corp and Amazon CDR

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

The idea behind Microsoft Corp CDR and Amazon CDR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.