Correlation Between Microsoft and Kadant

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

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

Diversification Opportunities for Microsoft and Kadant

0.2

Correlation Coefficient

Microsoft  Kadant

Modest diversification

The 3 months correlation between Microsoft and Kadant is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc 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 Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Microsoft i.e., Microsoft and Kadant go up and down completely randomly.

Pair Corralation between Microsoft and Kadant

Given the investment horizon of 90 days Microsoft is expected to under-perform the Kadant. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.36 times less risky than Kadant. The stock trades about -0.08 of its potential returns per unit of risk. The Kadant Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  34,532  in Kadant Inc on December 29, 2024 and sell it today you would earn a total of  588.00  from holding Kadant Inc or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Kadant Inc

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.

Kadant Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Kadant is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microsoft and Kadant

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

The idea behind Microsoft and Kadant Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.