Correlation Between Microsoft Corp and UPS CDR

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

Diversification Opportunities for Microsoft Corp and UPS CDR

0.71

Correlation Coefficient

Microsoft Corp  UPS CDR

Poor diversification

The 3 months correlation between Microsoft and UPS is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and UPS CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPS 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 UPS CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPS CDR has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and UPS CDR go up and down completely randomly.

Pair Corralation between Microsoft Corp and UPS CDR

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the UPS CDR. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft Corp CDR is 1.38 times less risky than UPS CDR. The stock trades about -0.11 of its potential returns per unit of risk. The UPS CDR is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,618  in UPS CDR on December 30, 2024 and sell it today you would lose (193.00) from holding UPS CDR or give up 11.93% of portfolio value over 90 days.

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

Microsoft Corp CDR  vs.  UPS 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 latest unfluctuating 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.

UPS CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days UPS CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Microsoft Corp and UPS CDR

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

The idea behind Microsoft Corp CDR and UPS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.