Correlation Between Microsoft and CITIC

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

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

Diversification Opportunities for Microsoft and CITIC

-0.06

Correlation Coefficient

Microsoft  CITIC

Good diversification

The 3 months correlation between Microsoft and CITIC is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Limited has no effect on the direction of Microsoft i.e., Microsoft and CITIC go up and down completely randomly.

Pair Corralation between Microsoft and CITIC

Given the investment horizon of 90 days Microsoft is expected to generate 0.63 times more return on investment than CITIC. However, Microsoft is 1.59 times less risky than CITIC. It trades about 0.19 of its potential returns per unit of risk. CITIC Limited is currently generating about -0.22 per unit of risk. If you would invest  40,554  in Microsoft on September 1, 2024 and sell it today you would earn a total of  1,792  from holding Microsoft or generate 4.42% return on investment over 90 days.

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

Microsoft  vs.  CITIC Limited

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

CITIC Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CITIC

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

The idea behind Microsoft and CITIC Limited 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.