Correlation Between Microsoft and Bright Rock

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

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

Diversification Opportunities for Microsoft and Bright Rock

0.43

Correlation Coefficient

Microsoft  Bright Rock

Very weak diversification

The 3 months correlation between Microsoft and Bright is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bright Rock Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Quality 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 Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Quality has no effect on the direction of Microsoft i.e., Microsoft and Bright Rock go up and down completely randomly.

Pair Corralation between Microsoft and Bright Rock

Given the investment horizon of 90 days Microsoft is expected to under-perform the Bright Rock. In addition to that, Microsoft is 2.21 times more volatile than Bright Rock Quality. It trades about -0.11 of its total potential returns per unit of risk. Bright Rock Quality is currently generating about -0.04 per unit of volatility. If you would invest  2,209  in Bright Rock Quality on December 30, 2024 and sell it today you would lose (47.00) from holding Bright Rock Quality or give up 2.13% of portfolio value over 90 days.

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

Microsoft  vs.  Bright Rock Quality

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.

Bright Rock Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bright Rock Quality has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Bright Rock 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 Bright Rock

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

The idea behind Microsoft and Bright Rock Quality 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..