Correlation Between Microsoft and Keum Kang

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

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

Diversification Opportunities for Microsoft and Keum Kang

-0.58

Correlation Coefficient

Microsoft  Keum Kang

Excellent diversification

The 3 months correlation between Microsoft and Keum is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Keum Kang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keum Kang Steel 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 Keum Kang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keum Kang Steel has no effect on the direction of Microsoft i.e., Microsoft and Keum Kang go up and down completely randomly.

Pair Corralation between Microsoft and Keum Kang

Given the investment horizon of 90 days Microsoft is expected to under-perform the Keum Kang. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.04 times less risky than Keum Kang. The stock trades about -0.11 of its potential returns per unit of risk. The Keum Kang Steel is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  392,000  in Keum Kang Steel on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Keum Kang Steel or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Microsoft  vs.  Keum Kang Steel

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Keum Kang Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Keum Kang Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Keum Kang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Keum Kang

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

The idea behind Microsoft and Keum Kang Steel 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.