Correlation Between Microsoft and FIRE Funds

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

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

Diversification Opportunities for Microsoft and FIRE Funds

-0.36

Correlation Coefficient

Microsoft  FIRE Funds

Very good diversification

The 3 months correlation between Microsoft and FIRE is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FIRE Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRE Funds Income 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 FIRE Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRE Funds Income has no effect on the direction of Microsoft i.e., Microsoft and FIRE Funds go up and down completely randomly.

Pair Corralation between Microsoft and FIRE Funds

Given the investment horizon of 90 days Microsoft is expected to under-perform the FIRE Funds. In addition to that, Microsoft is 4.87 times more volatile than FIRE Funds Income. It trades about -0.11 of its total potential returns per unit of risk. FIRE Funds Income is currently generating about 0.02 per unit of volatility. If you would invest  1,918  in FIRE Funds Income on December 29, 2024 and sell it today you would earn a total of  8.00  from holding FIRE Funds Income or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  FIRE Funds Income

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.

FIRE Funds Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FIRE Funds Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, FIRE Funds is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microsoft and FIRE Funds

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

The idea behind Microsoft and FIRE Funds Income 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.