Correlation Between Microsoft and Fidelity Japan

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

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

Diversification Opportunities for Microsoft and Fidelity Japan

0.34

Correlation Coefficient

Microsoft  Fidelity Japan

Weak diversification

The 3 months correlation between Microsoft and Fidelity is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Fidelity Japan Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Japan Smaller 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 Fidelity Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Japan Smaller has no effect on the direction of Microsoft i.e., Microsoft and Fidelity Japan go up and down completely randomly.

Pair Corralation between Microsoft and Fidelity Japan

Given the investment horizon of 90 days Microsoft is expected to under-perform the Fidelity Japan. In addition to that, Microsoft is 1.49 times more volatile than Fidelity Japan Smaller. It trades about -0.06 of its total potential returns per unit of risk. Fidelity Japan Smaller is currently generating about -0.06 per unit of volatility. If you would invest  1,637  in Fidelity Japan Smaller on November 29, 2024 and sell it today you would lose (61.00) from holding Fidelity Japan Smaller or give up 3.73% of portfolio value over 90 days.

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

Microsoft  vs.  Fidelity Japan Smaller

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 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.

Fidelity Japan Smaller

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Japan Smaller has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Fidelity Japan 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 Fidelity Japan

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

The idea behind Microsoft and Fidelity Japan Smaller 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.