Correlation Between Microsoft and Centr Brands

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

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

Diversification Opportunities for Microsoft and Centr Brands

-0.48

Correlation Coefficient

Microsoft  Centr Brands

Very good diversification

The 3 months correlation between Microsoft and Centr is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Centr Brands Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centr Brands Corp 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 Centr Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centr Brands Corp has no effect on the direction of Microsoft i.e., Microsoft and Centr Brands go up and down completely randomly.

Pair Corralation between Microsoft and Centr Brands

Given the investment horizon of 90 days Microsoft is expected to generate 31.15 times less return on investment than Centr Brands. But when comparing it to its historical volatility, Microsoft is 22.27 times less risky than Centr Brands. It trades about 0.06 of its potential returns per unit of risk. Centr Brands Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7.60  in Centr Brands Corp on September 13, 2024 and sell it today you would lose (2.22) from holding Centr Brands Corp or give up 29.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Centr Brands Corp

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Centr Brands Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Centr Brands Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Centr Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Centr Brands

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

The idea behind Microsoft and Centr Brands Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.