Correlation Between Microsoft and Big Rock

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

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

Diversification Opportunities for Microsoft and Big Rock

0.0

Correlation Coefficient

Microsoft  Big Rock

Pay attention - limited upside

The 3 months correlation between Microsoft and Big is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Big Rock Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Rock Brewery 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 Big Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Rock Brewery has no effect on the direction of Microsoft i.e., Microsoft and Big Rock go up and down completely randomly.

Pair Corralation between Microsoft and Big Rock

Given the investment horizon of 90 days Microsoft is expected to generate 0.34 times more return on investment than Big Rock. However, Microsoft is 2.94 times less risky than Big Rock. It trades about -0.3 of its potential returns per unit of risk. Big Rock Brewery is currently generating about -0.11 per unit of risk. If you would invest  44,956  in Microsoft on October 13, 2024 and sell it today you would lose (3,061) from holding Microsoft or give up 6.81% of portfolio value over 90 days.

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

Microsoft  vs.  Big Rock Brewery

Microsoft

Risk-Adjusted Performance

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Weak

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Big Rock Brewery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Rock Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Big Rock is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Big Rock

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

The idea behind Microsoft and Big Rock Brewery 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.