Correlation Between Microsoft and Xinjiang Daqo

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

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

Diversification Opportunities for Microsoft and Xinjiang Daqo

-0.23

Correlation Coefficient

Microsoft  Xinjiang Daqo

Very good diversification

The 3 months correlation between Microsoft and Xinjiang is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Xinjiang Daqo New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Daqo New 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 Xinjiang Daqo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Daqo New has no effect on the direction of Microsoft i.e., Microsoft and Xinjiang Daqo go up and down completely randomly.

Pair Corralation between Microsoft and Xinjiang Daqo

Given the investment horizon of 90 days Microsoft is expected to generate 0.6 times more return on investment than Xinjiang Daqo. However, Microsoft is 1.67 times less risky than Xinjiang Daqo. It trades about 0.2 of its potential returns per unit of risk. Xinjiang Daqo New is currently generating about -0.3 per unit of risk. If you would invest  41,466  in Microsoft on September 21, 2024 and sell it today you would earn a total of  2,194  from holding Microsoft or generate 5.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Microsoft  vs.  Xinjiang Daqo New

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Xinjiang Daqo New

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Daqo New are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Daqo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Xinjiang Daqo

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

The idea behind Microsoft and Xinjiang Daqo New 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.