Correlation Between Microsoft and Exchange Bank

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

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

Diversification Opportunities for Microsoft and Exchange Bank

0.68

Correlation Coefficient

Microsoft  Exchange Bank

Poor diversification

The 3 months correlation between Microsoft and Exchange is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bank 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 Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of Microsoft i.e., Microsoft and Exchange Bank go up and down completely randomly.

Pair Corralation between Microsoft and Exchange Bank

Given the investment horizon of 90 days Microsoft is expected to under-perform the Exchange Bank. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.87 times less risky than Exchange Bank. The stock trades about -0.04 of its potential returns per unit of risk. The Exchange Bank is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,519  in Exchange Bank on October 10, 2024 and sell it today you would earn a total of  1,081  from holding Exchange Bank or generate 11.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Microsoft  vs.  Exchange Bank

Microsoft

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Exchange Bank

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Exchange Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Microsoft and Exchange Bank

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

The idea behind Microsoft and Exchange Bank 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.