Correlation Between Microsoft and Financial Street

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Financial Street 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 and Financial Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Financial Street Holdings, you can compare the effects of market volatilities on Microsoft and Financial Street 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 with a short position of Financial Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Financial Street.

Diversification Opportunities for Microsoft and Financial Street

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Microsoft and Financial is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Financial Street Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Street Holdings and Microsoft 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 are associated (or correlated) with Financial Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Street Holdings has no effect on the direction of Microsoft i.e., Microsoft and Financial Street go up and down completely randomly.

Pair Corralation between Microsoft and Financial Street

Given the investment horizon of 90 days Microsoft is expected to generate 0.53 times more return on investment than Financial Street. However, Microsoft is 1.9 times less risky than Financial Street. It trades about 0.07 of its potential returns per unit of risk. Financial Street Holdings is currently generating about -0.27 per unit of risk. If you would invest  42,346  in Microsoft on September 29, 2024 and sell it today you would earn a total of  707.00  from holding Microsoft or generate 1.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy90.91%
ValuesDaily Returns

Microsoft  vs.  Financial Street Holdings

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
Financial Street Holdings 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Financial Street Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Financial Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Microsoft and Financial Street Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Financial Street

The main advantage of trading using opposite Microsoft and Financial Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Financial Street 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 Financial Street will offset losses from the drop in Financial Street's long position.
The idea behind Microsoft and Financial Street Holdings 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.
Check out your portfolio center.
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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