Correlation Between Microsoft Corp and First Capital

Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and First Capital 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 First Capital 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 First Capital Real, you can compare the effects of market volatilities on Microsoft Corp and First Capital 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 First Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and First Capital.

Diversification Opportunities for Microsoft Corp and First Capital

0.37

Correlation Coefficient

Microsoft Corp  First Capital

Weak diversification

The 3 months correlation between Microsoft and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and First Capital Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Real 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 First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Real has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and First Capital go up and down completely randomly.

Pair Corralation between Microsoft Corp and First Capital

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 1.38 times more return on investment than First Capital. However, Microsoft Corp is 1.38 times more volatile than First Capital Real. It trades about -0.06 of its potential returns per unit of risk. First Capital Real is currently generating about -0.09 per unit of risk. If you would invest  3,084  in Microsoft Corp CDR on November 29, 2024 and sell it today you would lose (175.00) from holding Microsoft Corp CDR or give up 5.67% of portfolio value over 90 days.

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

Microsoft Corp CDR  vs.  First Capital Real

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.

First Capital Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Capital Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft Corp and First Capital

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

The idea behind Microsoft Corp CDR and First Capital Real 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.