Correlation Between Microsoft and Core Lithium

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

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

Diversification Opportunities for Microsoft and Core Lithium

-0.58

Correlation Coefficient

Microsoft  Core Lithium

Excellent diversification

The 3 months correlation between Microsoft and Core is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Microsoft i.e., Microsoft and Core Lithium go up and down completely randomly.

Pair Corralation between Microsoft and Core Lithium

Given the investment horizon of 90 days Microsoft is expected to generate 0.22 times more return on investment than Core Lithium. However, Microsoft is 4.52 times less risky than Core Lithium. It trades about 0.42 of its potential returns per unit of risk. Core Lithium is currently generating about -0.14 per unit of risk. If you would invest  41,493  in Microsoft on September 17, 2024 and sell it today you would earn a total of  3,234  from holding Microsoft or generate 7.79% return on investment over 90 days.

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

Microsoft  vs.  Core Lithium

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

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Core Lithium is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Core Lithium

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

The idea behind Microsoft and Core Lithium 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.