Correlation Between Microsoft and Formula One

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

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

Diversification Opportunities for Microsoft and Formula One

0.06

Correlation Coefficient

Microsoft  Formula One

Significant diversification

The 3 months correlation between Microsoft and Formula is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Formula One Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formula One Group 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 Formula One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formula One Group has no effect on the direction of Microsoft i.e., Microsoft and Formula One go up and down completely randomly.

Pair Corralation between Microsoft and Formula One

If you would invest  43,048  in Microsoft on September 16, 2024 and sell it today you would earn a total of  1,679  from holding Microsoft or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.54%
Values	Daily Returns

Microsoft  vs.  Formula One Group

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Formula One Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formula One Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Formula One is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Formula One

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

The idea behind Microsoft and Formula One Group 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.