Correlation Between Microsoft and Arkadia Digital

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

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

Diversification Opportunities for Microsoft and Arkadia Digital

0.34

Correlation Coefficient

Microsoft  Arkadia Digital

Weak diversification

The 3 months correlation between Microsoft and Arkadia is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Arkadia Digital Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkadia Digital Media 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 Arkadia Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkadia Digital Media has no effect on the direction of Microsoft i.e., Microsoft and Arkadia Digital go up and down completely randomly.

Pair Corralation between Microsoft and Arkadia Digital

Given the investment horizon of 90 days Microsoft is expected to generate 35.81 times less return on investment than Arkadia Digital. But when comparing it to its historical volatility, Microsoft is 3.17 times less risky than Arkadia Digital. It trades about 0.01 of its potential returns per unit of risk. Arkadia Digital Media is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,100  in Arkadia Digital Media on September 14, 2024 and sell it today you would earn a total of  400.00  from holding Arkadia Digital Media or generate 36.36% 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.  Arkadia Digital Media

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

Arkadia Digital Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkadia Digital Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Arkadia Digital is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Arkadia Digital

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

The idea behind Microsoft and Arkadia Digital Media 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.