Correlation Between Microsoft and Faes Farma

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

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

Diversification Opportunities for Microsoft and Faes Farma

0.2

Correlation Coefficient

Microsoft  Faes Farma

Modest diversification

The 3 months correlation between Microsoft and Faes is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Faes Farma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faes Farma SA 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 Faes Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faes Farma SA has no effect on the direction of Microsoft i.e., Microsoft and Faes Farma go up and down completely randomly.

Pair Corralation between Microsoft and Faes Farma

Given the investment horizon of 90 days Microsoft is expected to under-perform the Faes Farma. In addition to that, Microsoft is 1.16 times more volatile than Faes Farma SA. It trades about -0.1 of its total potential returns per unit of risk. Faes Farma SA is currently generating about 0.03 per unit of volatility. If you would invest  340.00  in Faes Farma SA on December 22, 2024 and sell it today you would earn a total of  8.00  from holding Faes Farma SA or generate 2.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Faes Farma SA

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.

Faes Farma SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Faes Farma SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Faes Farma is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Faes Farma

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

The idea behind Microsoft and Faes Farma SA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.