Correlation Between Microsoft and Hisar Metal

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

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

Diversification Opportunities for Microsoft and Hisar Metal

0.28

Correlation Coefficient

Microsoft  Hisar Metal

Modest diversification

The 3 months correlation between Microsoft and Hisar is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Hisar Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hisar Metal Industries 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 Hisar Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hisar Metal Industries has no effect on the direction of Microsoft i.e., Microsoft and Hisar Metal go up and down completely randomly.

Pair Corralation between Microsoft and Hisar Metal

Given the investment horizon of 90 days Microsoft is expected to under-perform the Hisar Metal. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.95 times less risky than Hisar Metal. The stock trades about -0.01 of its potential returns per unit of risk. The Hisar Metal Industries is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  16,413  in Hisar Metal Industries on November 20, 2024 and sell it today you would earn a total of  2,342  from holding Hisar Metal Industries or generate 14.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Microsoft  vs.  Hisar Metal Industries

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.

Hisar Metal Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hisar Metal Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Hisar Metal exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Hisar Metal

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

The idea behind Microsoft and Hisar Metal Industries 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.