Correlation Between Microsoft and Shanghai Fudan

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

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

Diversification Opportunities for Microsoft and Shanghai Fudan

-0.15

Correlation Coefficient

Microsoft  Shanghai Fudan

Good diversification

The 3 months correlation between Microsoft and Shanghai is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Shanghai Fudan Microelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fudan Micro 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 Shanghai Fudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fudan Micro has no effect on the direction of Microsoft i.e., Microsoft and Shanghai Fudan go up and down completely randomly.

Pair Corralation between Microsoft and Shanghai Fudan

Given the investment horizon of 90 days Microsoft is expected to under-perform the Shanghai Fudan. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.39 times less risky than Shanghai Fudan. The stock trades about -0.01 of its potential returns per unit of risk. The Shanghai Fudan Microelectronics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,154  in Shanghai Fudan Microelectronics on September 22, 2024 and sell it today you would earn a total of  1,040  from holding Shanghai Fudan Microelectronics or generate 32.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.64%
Values	Daily Returns

Microsoft  vs.  Shanghai Fudan Microelectronic

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

Shanghai Fudan Micro

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Fudan Microelectronics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Fudan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Shanghai Fudan

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

The idea behind Microsoft and Shanghai Fudan Microelectronics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.