Correlation Between Microsoft and Wistron NeWeb

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

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

Diversification Opportunities for Microsoft and Wistron NeWeb

0.33

Correlation Coefficient

Microsoft  Wistron NeWeb

Weak diversification

The 3 months correlation between Microsoft and Wistron is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wistron NeWeb Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wistron NeWeb 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 Wistron NeWeb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wistron NeWeb Corp has no effect on the direction of Microsoft i.e., Microsoft and Wistron NeWeb go up and down completely randomly.

Pair Corralation between Microsoft and Wistron NeWeb

Given the investment horizon of 90 days Microsoft is expected to generate 1.03 times less return on investment than Wistron NeWeb. But when comparing it to its historical volatility, Microsoft is 1.68 times less risky than Wistron NeWeb. It trades about 0.09 of its potential returns per unit of risk. Wistron NeWeb Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,190  in Wistron NeWeb Corp on October 7, 2024 and sell it today you would earn a total of  5,260  from holding Wistron NeWeb Corp or generate 64.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.98%
Values	Daily Returns

Microsoft  vs.  Wistron NeWeb Corp

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.

Wistron NeWeb Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wistron NeWeb Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wistron NeWeb showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Wistron NeWeb

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

The idea behind Microsoft and Wistron NeWeb 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.