Correlation Between Microsoft and Huge

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

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

Diversification Opportunities for Microsoft and Huge

0.4

Correlation Coefficient

Microsoft  Huge

Very weak diversification

The 3 months correlation between Microsoft and Huge is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Huge Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huge 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 Huge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huge Group has no effect on the direction of Microsoft i.e., Microsoft and Huge go up and down completely randomly.

Pair Corralation between Microsoft and Huge

Given the investment horizon of 90 days Microsoft is expected to under-perform the Huge. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.86 times less risky than Huge. The stock trades about -0.08 of its potential returns per unit of risk. The Huge Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  21,000  in Huge Group on December 29, 2024 and sell it today you would lose (2,100) from holding Huge Group or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Microsoft  vs.  Huge Group

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.

Huge Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huge Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Huge is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Huge

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

The idea behind Microsoft and Huge 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.