Correlation Between Microsoft and Centrotec

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

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

Diversification Opportunities for Microsoft and Centrotec

0.62

Correlation Coefficient

Microsoft  Centrotec

Poor diversification

The 3 months correlation between Microsoft and Centrotec is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Centrotec SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrotec SE 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 Centrotec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrotec SE has no effect on the direction of Microsoft i.e., Microsoft and Centrotec go up and down completely randomly.

Pair Corralation between Microsoft and Centrotec

Given the investment horizon of 90 days Microsoft is expected to generate 1.11 times less return on investment than Centrotec. But when comparing it to its historical volatility, Microsoft is 2.09 times less risky than Centrotec. It trades about 0.42 of its potential returns per unit of risk. Centrotec SE is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  4,840  in Centrotec SE on September 17, 2024 and sell it today you would earn a total of  410.00  from holding Centrotec SE or generate 8.47% return on investment over 90 days.

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

Microsoft  vs.  Centrotec SE

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Centrotec SE

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Centrotec SE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Centrotec is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Centrotec

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

The idea behind Microsoft and Centrotec SE 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.