Correlation Between Microsoft and Zhejiang Longsheng

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

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

Diversification Opportunities for Microsoft and Zhejiang Longsheng

0.02

Correlation Coefficient

Microsoft  Zhejiang Longsheng

Significant diversification

The 3 months correlation between Microsoft and Zhejiang is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Zhejiang Longsheng Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Longsheng 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 Zhejiang Longsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Longsheng has no effect on the direction of Microsoft i.e., Microsoft and Zhejiang Longsheng go up and down completely randomly.

Pair Corralation between Microsoft and Zhejiang Longsheng

Given the investment horizon of 90 days Microsoft is expected to generate 0.76 times more return on investment than Zhejiang Longsheng. However, Microsoft is 1.31 times less risky than Zhejiang Longsheng. It trades about 0.51 of its potential returns per unit of risk. Zhejiang Longsheng Group is currently generating about 0.16 per unit of risk. If you would invest  41,493  in Microsoft on September 19, 2024 and sell it today you would earn a total of  3,953  from holding Microsoft or generate 9.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Microsoft  vs.  Zhejiang Longsheng Group

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Zhejiang Longsheng

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Longsheng Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Longsheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Zhejiang Longsheng

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

The idea behind Microsoft and Zhejiang Longsheng Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.