Correlation Between Microsoft and Capital Group

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

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

Diversification Opportunities for Microsoft and Capital Group

-0.18

Correlation Coefficient

Microsoft  Capital Group

Good diversification

The 3 months correlation between Microsoft and Capital is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Global 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 Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Global has no effect on the direction of Microsoft i.e., Microsoft and Capital Group go up and down completely randomly.

Pair Corralation between Microsoft and Capital Group

Given the investment horizon of 90 days Microsoft is expected to under-perform the Capital Group. In addition to that, Microsoft is 1.95 times more volatile than Capital Group Global. It trades about -0.1 of its total potential returns per unit of risk. Capital Group Global is currently generating about 0.05 per unit of volatility. If you would invest  2,575  in Capital Group Global on December 22, 2024 and sell it today you would earn a total of  58.00  from holding Capital Group Global or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  Capital Group Global

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.

Capital Group Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Group Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Capital Group is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Capital Group

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

The idea behind Microsoft and Capital Group Global 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.