Correlation Between Microsoft and Bright Dairy

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

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

Diversification Opportunities for Microsoft and Bright Dairy

0.56

Correlation Coefficient

Microsoft  Bright Dairy

Very weak diversification

The 3 months correlation between Microsoft and Bright is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bright Dairy Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Dairy Food 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 Bright Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Dairy Food has no effect on the direction of Microsoft i.e., Microsoft and Bright Dairy go up and down completely randomly.

Pair Corralation between Microsoft and Bright Dairy

Given the investment horizon of 90 days Microsoft is expected to under-perform the Bright Dairy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.46 times less risky than Bright Dairy. The stock trades about -0.04 of its potential returns per unit of risk. The Bright Dairy Food is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  766.00  in Bright Dairy Food on October 7, 2024 and sell it today you would earn a total of  63.00  from holding Bright Dairy Food or generate 8.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Microsoft  vs.  Bright Dairy Food

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Bright Dairy Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bright Dairy Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and Bright Dairy

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

The idea behind Microsoft and Bright Dairy Food 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..