Correlation Between Microsoft and KIMBALL ELECTRONICS

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

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

Diversification Opportunities for Microsoft and KIMBALL ELECTRONICS

0.82

Correlation Coefficient

Microsoft  KIMBALL ELECTRONICS

Very poor diversification

The 3 months correlation between Microsoft and KIMBALL is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and KIMBALL ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KIMBALL ELECTRONICS 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 KIMBALL ELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KIMBALL ELECTRONICS has no effect on the direction of Microsoft i.e., Microsoft and KIMBALL ELECTRONICS go up and down completely randomly.

Pair Corralation between Microsoft and KIMBALL ELECTRONICS

Given the investment horizon of 90 days Microsoft is expected to generate 0.8 times more return on investment than KIMBALL ELECTRONICS. However, Microsoft is 1.26 times less risky than KIMBALL ELECTRONICS. It trades about -0.11 of its potential returns per unit of risk. KIMBALL ELECTRONICS is currently generating about -0.1 per unit of risk. If you would invest  42,398  in Microsoft on December 30, 2024 and sell it today you would lose (4,518) from holding Microsoft or give up 10.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  KIMBALL ELECTRONICS

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.

KIMBALL ELECTRONICS

Risk-Adjusted Performance

Very Weak

Over the last 90 days KIMBALL ELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microsoft and KIMBALL ELECTRONICS

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

The idea behind Microsoft and KIMBALL ELECTRONICS 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.