Correlation Between Microsoft and Forza X1

Can any of the company-specific risk be diversified away by investing in both Microsoft and Forza X1 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 Forza X1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Forza X1, you can compare the effects of market volatilities on Microsoft and Forza X1 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 Forza X1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Forza X1.

Diversification Opportunities for Microsoft and Forza X1

0.21

Correlation Coefficient

Microsoft  Forza X1

Modest diversification

The 3 months correlation between Microsoft and Forza is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Forza X1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forza X1 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 Forza X1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forza X1 has no effect on the direction of Microsoft i.e., Microsoft and Forza X1 go up and down completely randomly.

Pair Corralation between Microsoft and Forza X1

Given the investment horizon of 90 days Microsoft is expected to generate 0.21 times more return on investment than Forza X1. However, Microsoft is 4.78 times less risky than Forza X1. It trades about 0.05 of its potential returns per unit of risk. Forza X1 is currently generating about -0.05 per unit of risk. If you would invest  36,640  in Microsoft on September 28, 2024 and sell it today you would earn a total of  6,081  from holding Microsoft or generate 16.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.04%
Values	Daily Returns

Microsoft  vs.  Forza X1

Microsoft

Risk-Adjusted Performance

2 of 100

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Forza X1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forza X1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Forza X1

The main advantage of trading using opposite Microsoft and Forza X1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Forza X1 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 Forza X1 will offset losses from the drop in Forza X1's long position.

The idea behind Microsoft and Forza X1 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.