Correlation Between Microsoft and First Eagle

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

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

Diversification Opportunities for Microsoft and First Eagle

0.49

Correlation Coefficient

Microsoft  First Eagle

Very weak diversification

The 3 months correlation between Microsoft and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and First Eagle Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Eagle Alternative 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 Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Eagle Alternative has no effect on the direction of Microsoft i.e., Microsoft and First Eagle go up and down completely randomly.

Pair Corralation between Microsoft and First Eagle

Given the investment horizon of 90 days Microsoft is expected to generate 2.92 times more return on investment than First Eagle. However, Microsoft is 2.92 times more volatile than First Eagle Alternative. It trades about 0.08 of its potential returns per unit of risk. First Eagle Alternative is currently generating about 0.1 per unit of risk. If you would invest  33,746  in Microsoft on September 19, 2024 and sell it today you would earn a total of  9,993  from holding Microsoft or generate 29.61% return on investment over 90 days.

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

Microsoft  vs.  First Eagle Alternative

Microsoft

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

First Eagle Alternative

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Eagle Alternative are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Eagle is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and First Eagle

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

The idea behind Microsoft and First Eagle Alternative 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.