Correlation Between Microsoft and First Citizens

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

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

Diversification Opportunities for Microsoft and First Citizens

0.07

Correlation Coefficient

Microsoft  First Citizens

Significant diversification

The 3 months correlation between Microsoft and First is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares 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 First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of Microsoft i.e., Microsoft and First Citizens go up and down completely randomly.

Pair Corralation between Microsoft and First Citizens

Given the investment horizon of 90 days Microsoft is expected to generate 5.23 times less return on investment than First Citizens. But when comparing it to its historical volatility, Microsoft is 1.79 times less risky than First Citizens. It trades about 0.03 of its potential returns per unit of risk. First Citizens BancShares is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  156,328  in First Citizens BancShares on October 22, 2024 and sell it today you would earn a total of  62,566  from holding First Citizens BancShares or generate 40.02% return on investment over 90 days.

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

Microsoft  vs.  First Citizens BancShares

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

First Citizens BancShares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental indicators, First Citizens may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and First Citizens

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

The idea behind Microsoft and First Citizens BancShares 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.