Correlation Between Microsoft and HUTCHISON TELECOMM

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

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

Diversification Opportunities for Microsoft and HUTCHISON TELECOMM

0.83

Correlation Coefficient

Microsoft  HUTCHISON TELECOMM

Very poor diversification

The 3 months correlation between Microsoft and HUTCHISON is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and HUTCHISON TELECOMM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUTCHISON TELECOMM 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 HUTCHISON TELECOMM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUTCHISON TELECOMM has no effect on the direction of Microsoft i.e., Microsoft and HUTCHISON TELECOMM go up and down completely randomly.

Pair Corralation between Microsoft and HUTCHISON TELECOMM

Given the investment horizon of 90 days Microsoft is expected to generate 0.38 times more return on investment than HUTCHISON TELECOMM. However, Microsoft is 2.6 times less risky than HUTCHISON TELECOMM. It trades about -0.11 of its potential returns per unit of risk. HUTCHISON TELECOMM is currently generating about -0.08 per unit of risk. If you would invest  43,845  in Microsoft on December 24, 2024 and sell it today you would lose (4,719) from holding Microsoft or give up 10.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  HUTCHISON TELECOMM

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

HUTCHISON TELECOMM

Risk-Adjusted Performance

Very Weak

Over the last 90 days HUTCHISON TELECOMM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Microsoft and HUTCHISON TELECOMM

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

The idea behind Microsoft and HUTCHISON TELECOMM 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.