Correlation Between Microsoft and Optotech Corp

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

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

Diversification Opportunities for Microsoft and Optotech Corp

-0.4

Correlation Coefficient

Microsoft  Optotech Corp

Very good diversification

The 3 months correlation between Microsoft and Optotech is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Optotech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optotech Corp 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 Optotech Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optotech Corp has no effect on the direction of Microsoft i.e., Microsoft and Optotech Corp go up and down completely randomly.

Pair Corralation between Microsoft and Optotech Corp

Given the investment horizon of 90 days Microsoft is expected to generate 0.65 times more return on investment than Optotech Corp. However, Microsoft is 1.54 times less risky than Optotech Corp. It trades about 0.01 of its potential returns per unit of risk. Optotech Corp is currently generating about -0.23 per unit of risk. If you would invest  42,666  in Microsoft on October 22, 2024 and sell it today you would earn a total of  237.00  from holding Microsoft or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Optotech Corp

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Optotech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optotech Corp 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 basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Microsoft and Optotech Corp

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

The idea behind Microsoft and Optotech Corp 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.

Check out your portfolio center.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.