Correlation Between Microsoft and GrafTech International

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

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

Diversification Opportunities for Microsoft and GrafTech International

0.04

Correlation Coefficient

Microsoft  GrafTech International

Significant diversification

The 3 months correlation between Microsoft and GrafTech is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GrafTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrafTech International 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 GrafTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrafTech International has no effect on the direction of Microsoft i.e., Microsoft and GrafTech International go up and down completely randomly.

Pair Corralation between Microsoft and GrafTech International

Given the investment horizon of 90 days Microsoft is expected to under-perform the GrafTech International. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.71 times less risky than GrafTech International. The stock trades about -0.01 of its potential returns per unit of risk. The GrafTech International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  97.00  in GrafTech International on September 23, 2024 and sell it today you would earn a total of  58.00  from holding GrafTech International or generate 59.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.69%
Values	Daily Returns

Microsoft  vs.  GrafTech International

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

GrafTech International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GrafTech International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GrafTech International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and GrafTech International

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

The idea behind Microsoft and GrafTech International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.