Correlation Between Microsoft and Perkins Small

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

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

Diversification Opportunities for Microsoft and Perkins Small

-0.36

Correlation Coefficient

Microsoft  Perkins Small

Very good diversification

The 3 months correlation between Microsoft and Perkins is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Perkins Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perkins Small Cap 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 Perkins Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perkins Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Perkins Small go up and down completely randomly.

Pair Corralation between Microsoft and Perkins Small

Given the investment horizon of 90 days Microsoft is expected to generate 0.93 times more return on investment than Perkins Small. However, Microsoft is 1.07 times less risky than Perkins Small. It trades about 0.09 of its potential returns per unit of risk. Perkins Small Cap is currently generating about 0.02 per unit of risk. If you would invest  31,876  in Microsoft on September 26, 2024 and sell it today you would earn a total of  12,057  from holding Microsoft or generate 37.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.68%
Values	Daily Returns

Microsoft  vs.  Perkins Small Cap

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Perkins Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Perkins Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Perkins Small

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

The idea behind Microsoft and Perkins Small Cap 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.