Correlation Between Microsoft and BCE

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

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

Diversification Opportunities for Microsoft and BCE

0.1

Correlation Coefficient

Microsoft  BCE

Average diversification

The 3 months correlation between Microsoft and BCE is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BCE Inc Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCE Inc Pref 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 BCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCE Inc Pref has no effect on the direction of Microsoft i.e., Microsoft and BCE go up and down completely randomly.

Pair Corralation between Microsoft and BCE

Given the investment horizon of 90 days Microsoft is expected to under-perform the BCE. In addition to that, Microsoft is 2.0 times more volatile than BCE Inc Pref. It trades about -0.07 of its total potential returns per unit of risk. BCE Inc Pref is currently generating about 0.69 per unit of volatility. If you would invest  1,657  in BCE Inc Pref on October 23, 2024 and sell it today you would earn a total of  118.00  from holding BCE Inc Pref or generate 7.12% return on investment over 90 days.

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

Microsoft  vs.  BCE Inc Pref

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

BCE Inc Pref

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc Pref are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, BCE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and BCE

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

The idea behind Microsoft and BCE Inc Pref 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.