Correlation Between Microsoft Corp and Touchstone Exploration

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

Diversification Opportunities for Microsoft Corp and Touchstone Exploration

-0.72

Correlation Coefficient

Microsoft Corp  Touchstone Exploration

Pay attention - limited upside

The 3 months correlation between Microsoft and Touchstone is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Touchstone Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Exploration 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 Touchstone Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Exploration has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Touchstone Exploration go up and down completely randomly.

Pair Corralation between Microsoft Corp and Touchstone Exploration

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to generate 0.27 times more return on investment than Touchstone Exploration. However, Microsoft Corp CDR is 3.66 times less risky than Touchstone Exploration. It trades about 0.03 of its potential returns per unit of risk. Touchstone Exploration is currently generating about -0.05 per unit of risk. If you would invest  3,042  in Microsoft Corp CDR on October 11, 2024 and sell it today you would earn a total of  55.00  from holding Microsoft Corp CDR or generate 1.81% 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.  Touchstone Exploration

Microsoft Corp CDR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Touchstone Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microsoft Corp and Touchstone Exploration

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

The idea behind Microsoft Corp CDR and Touchstone Exploration 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.