Correlation Between Microsoft and BTC Digital

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

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

Diversification Opportunities for Microsoft and BTC Digital

0.6

Correlation Coefficient

Microsoft  BTC Digital

Poor diversification

The 3 months correlation between Microsoft and BTC is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BTC Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTC Digital 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 BTC Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTC Digital has no effect on the direction of Microsoft i.e., Microsoft and BTC Digital go up and down completely randomly.

Pair Corralation between Microsoft and BTC Digital

Given the investment horizon of 90 days Microsoft is expected to under-perform the BTC Digital. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 7.43 times less risky than BTC Digital. The stock trades about -0.11 of its potential returns per unit of risk. The BTC Digital is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  436.00  in BTC Digital on December 28, 2024 and sell it today you would lose (38.00) from holding BTC Digital or give up 8.72% of portfolio value over 90 days.

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

Microsoft  vs.  BTC Digital

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.

BTC Digital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BTC Digital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, BTC Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and BTC Digital

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

The idea behind Microsoft and BTC Digital 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.