Correlation Between Microsoft and Desjardins

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

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

Diversification Opportunities for Microsoft and Desjardins

-0.18

Correlation Coefficient

Microsoft  Desjardins

Good diversification

The 3 months correlation between Microsoft and Desjardins is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Desjardins RI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Emerging 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 Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Emerging has no effect on the direction of Microsoft i.e., Microsoft and Desjardins go up and down completely randomly.

Pair Corralation between Microsoft and Desjardins

Given the investment horizon of 90 days Microsoft is expected to generate 1.35 times more return on investment than Desjardins. However, Microsoft is 1.35 times more volatile than Desjardins RI Emerging. It trades about 0.06 of its potential returns per unit of risk. Desjardins RI Emerging is currently generating about 0.08 per unit of risk. If you would invest  43,048  in Microsoft on September 14, 2024 and sell it today you would earn a total of  1,908  from holding Microsoft or generate 4.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Desjardins RI Emerging

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.

Desjardins RI Emerging

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Emerging are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Desjardins is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Desjardins

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

The idea behind Microsoft and Desjardins RI Emerging 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.