Correlation Between Microsoft and Kolon Life

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

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

Diversification Opportunities for Microsoft and Kolon Life

0.25

Correlation Coefficient

Microsoft  Kolon Life

Modest diversification

The 3 months correlation between Microsoft and Kolon is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kolon Life Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kolon Life Science 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 Kolon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kolon Life Science has no effect on the direction of Microsoft i.e., Microsoft and Kolon Life go up and down completely randomly.

Pair Corralation between Microsoft and Kolon Life

Given the investment horizon of 90 days Microsoft is expected to generate 2.12 times less return on investment than Kolon Life. But when comparing it to its historical volatility, Microsoft is 1.83 times less risky than Kolon Life. It trades about 0.06 of its potential returns per unit of risk. Kolon Life Science is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,878,000  in Kolon Life Science on September 13, 2024 and sell it today you would earn a total of  157,000  from holding Kolon Life Science or generate 8.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.06%
Values	Daily Returns

Microsoft  vs.  Kolon Life Science

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Kolon Life Science

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kolon Life Science are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kolon Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Kolon Life

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

The idea behind Microsoft and Kolon Life Science 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.