Correlation Between Microsoft Corp and Metro

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

Diversification Opportunities for Microsoft Corp and Metro

-0.7

Correlation Coefficient

Microsoft Corp  Metro

Excellent diversification

The 3 months correlation between Microsoft and Metro is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc 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 Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Metro go up and down completely randomly.

Pair Corralation between Microsoft Corp and Metro

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the Metro. In addition to that, Microsoft Corp is 1.41 times more volatile than Metro Inc. It trades about -0.12 of its total potential returns per unit of risk. Metro Inc is currently generating about 0.07 per unit of volatility. If you would invest  9,083  in Metro Inc on December 24, 2024 and sell it today you would earn a total of  417.00  from holding Metro Inc or generate 4.59% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Metro Inc

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Metro Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Metro is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft Corp and Metro

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

The idea behind Microsoft Corp CDR and Metro Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.