Correlation Between Microsoft and Vulcan Materials

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

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

Diversification Opportunities for Microsoft and Vulcan Materials

0.43

Correlation Coefficient

Microsoft  Vulcan Materials

Very weak diversification

The 3 months correlation between Microsoft and Vulcan is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Vulcan Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Microsoft i.e., Microsoft and Vulcan Materials go up and down completely randomly.

Pair Corralation between Microsoft and Vulcan Materials

Given the investment horizon of 90 days Microsoft is expected to generate 0.93 times more return on investment than Vulcan Materials. However, Microsoft is 1.07 times less risky than Vulcan Materials. It trades about -0.08 of its potential returns per unit of risk. Vulcan Materials Co is currently generating about -0.14 per unit of risk. If you would invest  43,012  in Microsoft on November 30, 2024 and sell it today you would lose (3,298) from holding Microsoft or give up 7.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Vulcan Materials Co

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.

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and Vulcan Materials

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

The idea behind Microsoft and Vulcan Materials Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.