Correlation Between Microsoft and Columbia Large

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

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

Diversification Opportunities for Microsoft and Columbia Large

0.38

Correlation Coefficient

Microsoft  Columbia Large

Weak diversification

The 3 months correlation between Microsoft and Columbia is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Columbia Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Large Cap 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 Columbia Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Large Cap has no effect on the direction of Microsoft i.e., Microsoft and Columbia Large go up and down completely randomly.

Pair Corralation between Microsoft and Columbia Large

Given the investment horizon of 90 days Microsoft is expected to generate 1.68 times more return on investment than Columbia Large. However, Microsoft is 1.68 times more volatile than Columbia Large Cap. It trades about 0.09 of its potential returns per unit of risk. Columbia Large Cap is currently generating about 0.09 per unit of risk. If you would invest  23,866  in Microsoft on October 13, 2024 and sell it today you would earn a total of  18,029  from holding Microsoft or generate 75.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.95%
Values	Daily Returns

Microsoft  vs.  Columbia Large Cap

Microsoft

Risk-Adjusted Performance

0 of 100

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 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.

Columbia Large Cap

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Columbia Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Columbia Large 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 Columbia Large

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

The idea behind Microsoft and Columbia Large Cap 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.