Correlation Between Microsoft and China Construction

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

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

Diversification Opportunities for Microsoft and China Construction

-0.03

Correlation Coefficient

Microsoft  China Construction

Good diversification

The 3 months correlation between Microsoft and China is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Microsoft i.e., Microsoft and China Construction go up and down completely randomly.

Pair Corralation between Microsoft and China Construction

Given the investment horizon of 90 days Microsoft is expected to under-perform the China Construction. In addition to that, Microsoft is 2.58 times more volatile than China Construction Bank. It trades about -0.14 of its total potential returns per unit of risk. China Construction Bank is currently generating about -0.01 per unit of volatility. If you would invest  1,445  in China Construction Bank on December 5, 2024 and sell it today you would lose (5.00) from holding China Construction Bank or give up 0.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.22%
Values	Daily Returns

Microsoft  vs.  China Construction Bank

Microsoft

Risk-Adjusted Performance

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 abnormal performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

China Construction Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Construction Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Construction is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and China Construction

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

The idea behind Microsoft and China Construction Bank 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.