Correlation Between Microsoft and Digital Telecommunicatio

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

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

Diversification Opportunities for Microsoft and Digital Telecommunicatio

0.81

Correlation Coefficient

Microsoft  Digital Telecommunicatio

Very poor diversification

The 3 months correlation between Microsoft and Digital is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Digital Telecommunications Inf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Telecommunicatio 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 Digital Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Telecommunicatio has no effect on the direction of Microsoft i.e., Microsoft and Digital Telecommunicatio go up and down completely randomly.

Pair Corralation between Microsoft and Digital Telecommunicatio

Given the investment horizon of 90 days Microsoft is expected to under-perform the Digital Telecommunicatio. In addition to that, Microsoft is 1.57 times more volatile than Digital Telecommunications Infrastructure. It trades about -0.11 of its total potential returns per unit of risk. Digital Telecommunications Infrastructure is currently generating about -0.1 per unit of volatility. If you would invest  837.00  in Digital Telecommunications Infrastructure on December 30, 2024 and sell it today you would lose (52.00) from holding Digital Telecommunications Infrastructure or give up 6.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Digital Telecommunications Inf

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Digital Telecommunicatio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Telecommunications Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Digital Telecommunicatio is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Digital Telecommunicatio

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

The idea behind Microsoft and Digital Telecommunications Infrastructure 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.