Correlation Between Microsoft and DCM Financial

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

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

Diversification Opportunities for Microsoft and DCM Financial

0.29

Correlation Coefficient

Microsoft  DCM Financial

Modest diversification

The 3 months correlation between Microsoft and DCM is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DCM Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCM Financial Services 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 DCM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCM Financial Services has no effect on the direction of Microsoft i.e., Microsoft and DCM Financial go up and down completely randomly.

Pair Corralation between Microsoft and DCM Financial

Given the investment horizon of 90 days Microsoft is expected to generate 3.03 times less return on investment than DCM Financial. But when comparing it to its historical volatility, Microsoft is 1.93 times less risky than DCM Financial. It trades about 0.15 of its potential returns per unit of risk. DCM Financial Services is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  695.00  in DCM Financial Services on September 19, 2024 and sell it today you would earn a total of  198.00  from holding DCM Financial Services or generate 28.49% return on investment over 90 days.

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

Microsoft  vs.  DCM Financial Services

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

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

DCM Financial Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Microsoft and DCM Financial

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

The idea behind Microsoft and DCM Financial Services 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.