Correlation Between Microsoft and American Funds

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

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

Diversification Opportunities for Microsoft and American Funds

0.11

Correlation Coefficient

Microsoft  American Funds

Average diversification

The 3 months correlation between Microsoft and American is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Microsoft i.e., Microsoft and American Funds go up and down completely randomly.

Pair Corralation between Microsoft and American Funds

Given the investment horizon of 90 days Microsoft is expected to under-perform the American Funds. In addition to that, Microsoft is 2.52 times more volatile than American Funds Retirement. It trades about -0.36 of its total potential returns per unit of risk. American Funds Retirement is currently generating about -0.24 per unit of volatility. If you would invest  1,181  in American Funds Retirement on October 17, 2024 and sell it today you would lose (24.00) from holding American Funds Retirement or give up 2.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Microsoft  vs.  American Funds Retirement

Microsoft

Risk-Adjusted Performance

2 of 100

Very Weak

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.

American Funds Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and American Funds

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

The idea behind Microsoft and American Funds Retirement 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.