Correlation Between Microsoft and Select Fund

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

By analyzing existing cross correlation between Microsoft and Select Fund R6, you can compare the effects of market volatilities on Microsoft and Select Fund 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 Select Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Select Fund.

Diversification Opportunities for Microsoft and Select Fund

0.77

Correlation Coefficient

Microsoft  Select Fund

Poor diversification

The 3 months correlation between Microsoft and Select is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Select Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund R6 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 Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund R6 has no effect on the direction of Microsoft i.e., Microsoft and Select Fund go up and down completely randomly.

Pair Corralation between Microsoft and Select Fund

Given the investment horizon of 90 days Microsoft is expected to generate 0.83 times more return on investment than Select Fund. However, Microsoft is 1.2 times less risky than Select Fund. It trades about -0.2 of its potential returns per unit of risk. Select Fund R6 is currently generating about -0.18 per unit of risk. If you would invest  44,357  in Microsoft on October 7, 2024 and sell it today you would lose (2,022) from holding Microsoft or give up 4.56% of portfolio value over 90 days.

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

Microsoft  vs.  Select Fund R6

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Select Fund R6

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R6 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Select Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Select Fund

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

The idea behind Microsoft and Select Fund R6 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.