Correlation Between Microsoft and Alliance Entertainment

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

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

Diversification Opportunities for Microsoft and Alliance Entertainment

0.32

Correlation Coefficient

Microsoft  Alliance Entertainment

Weak diversification

The 3 months correlation between Microsoft and Alliance is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Alliance Entertainment Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Entertainment 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 Alliance Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Entertainment has no effect on the direction of Microsoft i.e., Microsoft and Alliance Entertainment go up and down completely randomly.

Pair Corralation between Microsoft and Alliance Entertainment

Given the investment horizon of 90 days Microsoft is expected to generate 0.09 times more return on investment than Alliance Entertainment. However, Microsoft is 10.79 times less risky than Alliance Entertainment. It trades about -0.08 of its potential returns per unit of risk. Alliance Entertainment Holding is currently generating about -0.09 per unit of risk. If you would invest  43,660  in Microsoft on October 21, 2024 and sell it today you would lose (757.00) from holding Microsoft or give up 1.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Alliance Entertainment Holding

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.

Alliance Entertainment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Entertainment Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alliance Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Alliance Entertainment

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

The idea behind Microsoft and Alliance Entertainment Holding 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.