Correlation Between Microsoft and City View

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

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

Diversification Opportunities for Microsoft and City View

-0.12

Correlation Coefficient

Microsoft  City View

Good diversification

The 3 months correlation between Microsoft and City is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and City View Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City View Green 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 City View. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City View Green has no effect on the direction of Microsoft i.e., Microsoft and City View go up and down completely randomly.

Pair Corralation between Microsoft and City View

Given the investment horizon of 90 days Microsoft is expected to generate 10.85 times less return on investment than City View. But when comparing it to its historical volatility, Microsoft is 13.2 times less risky than City View. It trades about 0.08 of its potential returns per unit of risk. City View Green is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.37  in City View Green on November 20, 2024 and sell it today you would earn a total of  0.19  from holding City View Green or generate 51.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Microsoft  vs.  City View Green

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 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.

City View Green

Risk-Adjusted Performance

Very Weak

Over the last 90 days City View Green has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, City View may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Microsoft and City View

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

The idea behind Microsoft and City View Green 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.