Correlation Between Microsoft and Tung Ho

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

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

Diversification Opportunities for Microsoft and Tung Ho

0.0

Correlation Coefficient

Microsoft  Tung Ho

Pay attention - limited upside

The 3 months correlation between Microsoft and Tung is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Tung Ho Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Ho Textile 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 Tung Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Ho Textile has no effect on the direction of Microsoft i.e., Microsoft and Tung Ho go up and down completely randomly.

Pair Corralation between Microsoft and Tung Ho

Given the investment horizon of 90 days Microsoft is expected to under-perform the Tung Ho. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.3 times less risky than Tung Ho. The stock trades about -0.08 of its potential returns per unit of risk. The Tung Ho Textile is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Tung Ho Textile on December 3, 2024 and sell it today you would lose (95.00) from holding Tung Ho Textile or give up 3.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	91.8%
Values	Daily Returns

Microsoft  vs.  Tung Ho Textile

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.

Tung Ho Textile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tung Ho Textile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Tung Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and Tung Ho

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

The idea behind Microsoft and Tung Ho Textile 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.