Correlation Between Microsoft and Amarc Resources

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

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

Diversification Opportunities for Microsoft and Amarc Resources

0.25

Correlation Coefficient

Microsoft  Amarc Resources

Modest diversification

The 3 months correlation between Microsoft and Amarc is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Amarc Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amarc Resources 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 Amarc Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amarc Resources has no effect on the direction of Microsoft i.e., Microsoft and Amarc Resources go up and down completely randomly.

Pair Corralation between Microsoft and Amarc Resources

Given the investment horizon of 90 days Microsoft is expected to generate 6.28 times less return on investment than Amarc Resources. But when comparing it to its historical volatility, Microsoft is 4.65 times less risky than Amarc Resources. It trades about 0.06 of its potential returns per unit of risk. Amarc Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9.00  in Amarc Resources on September 20, 2024 and sell it today you would earn a total of  11.00  from holding Amarc Resources or generate 122.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Microsoft  vs.  Amarc Resources

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Amarc Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Amarc Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Amarc Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Amarc Resources

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

The idea behind Microsoft and Amarc Resources 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 Commodity Directory module to find actively traded commodities issued by global exchanges.