Correlation Between Microsoft and Adidas AG

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

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

Diversification Opportunities for Microsoft and Adidas AG

0.52

Correlation Coefficient

Microsoft  Adidas AG

Very weak diversification

The 3 months correlation between Microsoft and Adidas is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Microsoft i.e., Microsoft and Adidas AG go up and down completely randomly.

Pair Corralation between Microsoft and Adidas AG

Given the investment horizon of 90 days Microsoft is expected to generate 1.15 times less return on investment than Adidas AG. But when comparing it to its historical volatility, Microsoft is 1.37 times less risky than Adidas AG. It trades about 0.09 of its potential returns per unit of risk. adidas AG is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16,410  in adidas AG on September 26, 2024 and sell it today you would earn a total of  7,080  from holding adidas AG or generate 43.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.42%
Values	Daily Returns

Microsoft  vs.  adidas AG

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

adidas AG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Adidas AG

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

The idea behind Microsoft and adidas AG 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.