Correlation Between Microsoft and Cosmo Metals

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

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

Diversification Opportunities for Microsoft and Cosmo Metals

-0.37

Correlation Coefficient

Microsoft  Cosmo Metals

Very good diversification

The 3 months correlation between Microsoft and Cosmo is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cosmo Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosmo Metals 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 Cosmo Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosmo Metals has no effect on the direction of Microsoft i.e., Microsoft and Cosmo Metals go up and down completely randomly.

Pair Corralation between Microsoft and Cosmo Metals

Given the investment horizon of 90 days Microsoft is expected to under-perform the Cosmo Metals. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.77 times less risky than Cosmo Metals. The stock trades about -0.22 of its potential returns per unit of risk. The Cosmo Metals is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Cosmo Metals on October 8, 2024 and sell it today you would earn a total of  0.40  from holding Cosmo Metals or generate 22.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Microsoft  vs.  Cosmo Metals

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Cosmo Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cosmo Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Microsoft and Cosmo Metals

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

The idea behind Microsoft and Cosmo Metals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.