Correlation Between Microsoft and Bdvex

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

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

Diversification Opportunities for Microsoft and Bdvex

0.04

Correlation Coefficient

Microsoft  Bdvex

Significant diversification

The 3 months correlation between Microsoft and Bdvex is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bdvex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bdvex 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 Bdvex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bdvex has no effect on the direction of Microsoft i.e., Microsoft and Bdvex go up and down completely randomly.

Pair Corralation between Microsoft and Bdvex

Given the investment horizon of 90 days Microsoft is expected to generate 0.71 times more return on investment than Bdvex. However, Microsoft is 1.41 times less risky than Bdvex. It trades about 0.2 of its potential returns per unit of risk. Bdvex is currently generating about -0.09 per unit of risk. If you would invest  41,493  in Microsoft on September 19, 2024 and sell it today you would earn a total of  2,246  from holding Microsoft or generate 5.41% return on investment over 90 days.

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

Microsoft  vs.  Bdvex

Microsoft

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Bdvex

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bdvex are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Bdvex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Bdvex

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

The idea behind Microsoft and Bdvex 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.