Correlation Between Microsoft and Industria

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

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

Diversification Opportunities for Microsoft and Industria

-0.22

Correlation Coefficient

Microsoft  Industria

Very good diversification

The 3 months correlation between Microsoft and Industria is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Industria de Diseo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industria de Diseo 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 Industria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industria de Diseo has no effect on the direction of Microsoft i.e., Microsoft and Industria go up and down completely randomly.

Pair Corralation between Microsoft and Industria

Given the investment horizon of 90 days Microsoft is expected to generate 1.16 times less return on investment than Industria. But when comparing it to its historical volatility, Microsoft is 1.48 times less risky than Industria. It trades about 0.1 of its potential returns per unit of risk. Industria de Diseo is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,573  in Industria de Diseo on September 25, 2024 and sell it today you would earn a total of  2,709  from holding Industria de Diseo or generate 105.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Microsoft  vs.  Industria de Diseo

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.

Industria de Diseo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industria de Diseo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Industria is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Industria

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

The idea behind Microsoft and Industria de Diseo 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.