Correlation Between Microsoft and Dye Durham

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

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

Diversification Opportunities for Microsoft and Dye Durham

0.8

Correlation Coefficient

Microsoft  Dye Durham

Very poor diversification

The 3 months correlation between Microsoft and Dye is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Dye Durham Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dye Durham Limited 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 Dye Durham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dye Durham Limited has no effect on the direction of Microsoft i.e., Microsoft and Dye Durham go up and down completely randomly.

Pair Corralation between Microsoft and Dye Durham

Given the investment horizon of 90 days Microsoft is expected to generate 0.35 times more return on investment than Dye Durham. However, Microsoft is 2.84 times less risky than Dye Durham. It trades about -0.11 of its potential returns per unit of risk. Dye Durham Limited is currently generating about -0.12 per unit of risk. If you would invest  43,438  in Microsoft on December 21, 2024 and sell it today you would lose (4,754) from holding Microsoft or give up 10.94% of portfolio value over 90 days.

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

Microsoft  vs.  Dye Durham Limited

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.

Dye Durham Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dye Durham Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Dye Durham

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

The idea behind Microsoft and Dye Durham Limited 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.