Correlation Between Microsoft and Dong Il

Can any of the company-specific risk be diversified away by investing in both Microsoft and Dong Il 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 Dong Il into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Dong Il Corp, you can compare the effects of market volatilities on Microsoft and Dong Il 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 Dong Il. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Dong Il.

Diversification Opportunities for Microsoft and Dong Il

0.6

Correlation Coefficient

Microsoft  Dong Il

Poor diversification

The 3 months correlation between Microsoft and Dong is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Dong Il Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong Il Corp 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 Dong Il. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong Il Corp has no effect on the direction of Microsoft i.e., Microsoft and Dong Il go up and down completely randomly.

Pair Corralation between Microsoft and Dong Il

Given the investment horizon of 90 days Microsoft is expected to generate 13.89 times less return on investment than Dong Il. But when comparing it to its historical volatility, Microsoft is 1.65 times less risky than Dong Il. It trades about 0.04 of its potential returns per unit of risk. Dong Il Corp is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  3,670,000  in Dong Il Corp on September 27, 2024 and sell it today you would earn a total of  1,430,000  from holding Dong Il Corp or generate 38.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	73.02%
Values	Daily Returns

Microsoft  vs.  Dong Il Corp

Microsoft

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Dong Il Corp

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dong Il Corp are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dong Il sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Dong Il

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

The idea behind Microsoft and Dong Il Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.