Correlation Between Microsoft and Wah Lee

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

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

Diversification Opportunities for Microsoft and Wah Lee

0.48

Correlation Coefficient

Microsoft  Wah Lee

Very weak diversification

The 3 months correlation between Microsoft and Wah is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wah Lee Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Lee Industrial 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 Wah Lee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Lee Industrial has no effect on the direction of Microsoft i.e., Microsoft and Wah Lee go up and down completely randomly.

Pair Corralation between Microsoft and Wah Lee

Given the investment horizon of 90 days Microsoft is expected to generate 0.7 times more return on investment than Wah Lee. However, Microsoft is 1.43 times less risky than Wah Lee. It trades about -0.08 of its potential returns per unit of risk. Wah Lee Industrial is currently generating about -0.26 per unit of risk. If you would invest  43,703  in Microsoft on October 20, 2024 and sell it today you would lose (800.00) from holding Microsoft or give up 1.83% of portfolio value over 90 days.

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

Microsoft  vs.  Wah Lee Industrial

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Wah Lee Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wah Lee Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Microsoft and Wah Lee

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

The idea behind Microsoft and Wah Lee Industrial 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.