Correlation Between Microsoft and Indo Rama

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

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

Diversification Opportunities for Microsoft and Indo Rama

0.02

Correlation Coefficient

Microsoft  Indo Rama

Significant diversification

The 3 months correlation between Microsoft and Indo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Indo Rama Synthetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Rama Synthetics 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 Indo Rama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Rama Synthetics has no effect on the direction of Microsoft i.e., Microsoft and Indo Rama go up and down completely randomly.

Pair Corralation between Microsoft and Indo Rama

Given the investment horizon of 90 days Microsoft is expected to generate 0.58 times more return on investment than Indo Rama. However, Microsoft is 1.73 times less risky than Indo Rama. It trades about 0.0 of its potential returns per unit of risk. Indo Rama Synthetics is currently generating about -0.12 per unit of risk. If you would invest  43,098  in Microsoft on October 1, 2024 and sell it today you would lose (45.00) from holding Microsoft or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Indo Rama Synthetics

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Indo Rama Synthetics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Rama Synthetics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microsoft and Indo Rama

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

The idea behind Microsoft and Indo Rama Synthetics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.