Correlation Between Microsoft and Artistic Denim

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

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

Diversification Opportunities for Microsoft and Artistic Denim

0.81

Correlation Coefficient

Microsoft  Artistic Denim

Very poor diversification

The 3 months correlation between Microsoft and Artistic is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Artistic Denim Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artistic Denim Mills 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 Artistic Denim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artistic Denim Mills has no effect on the direction of Microsoft i.e., Microsoft and Artistic Denim go up and down completely randomly.

Pair Corralation between Microsoft and Artistic Denim

Given the investment horizon of 90 days Microsoft is expected to generate 26.18 times less return on investment than Artistic Denim. But when comparing it to its historical volatility, Microsoft is 1.43 times less risky than Artistic Denim. It trades about 0.01 of its potential returns per unit of risk. Artistic Denim Mills is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,830  in Artistic Denim Mills on September 29, 2024 and sell it today you would earn a total of  876.00  from holding Artistic Denim Mills or generate 22.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Artistic Denim Mills

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Artistic Denim Mills

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Artistic Denim Mills are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Artistic Denim sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Artistic Denim

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

The idea behind Microsoft and Artistic Denim Mills 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.