Correlation Between Microsoft and Bradda Head

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

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

Diversification Opportunities for Microsoft and Bradda Head

0.51

Correlation Coefficient

Microsoft  Bradda Head

Very weak diversification

The 3 months correlation between Microsoft and Bradda is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bradda Head Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bradda Head Lithium 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 Bradda Head. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bradda Head Lithium has no effect on the direction of Microsoft i.e., Microsoft and Bradda Head go up and down completely randomly.

Pair Corralation between Microsoft and Bradda Head

Given the investment horizon of 90 days Microsoft is expected to under-perform the Bradda Head. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.36 times less risky than Bradda Head. The stock trades about -0.11 of its potential returns per unit of risk. The Bradda Head Lithium is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.30  in Bradda Head Lithium on December 30, 2024 and sell it today you would lose (0.20) from holding Bradda Head Lithium or give up 15.38% of portfolio value over 90 days.

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

Microsoft  vs.  Bradda Head Lithium

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Bradda Head Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bradda Head Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Bradda Head is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Bradda Head

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

The idea behind Microsoft and Bradda Head Lithium 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.