Correlation Between Microsoft and LGI

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

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

Diversification Opportunities for Microsoft and LGI

0.05

Correlation Coefficient

Microsoft  LGI

Significant diversification

The 3 months correlation between Microsoft and LGI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LGI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI 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 LGI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI has no effect on the direction of Microsoft i.e., Microsoft and LGI go up and down completely randomly.

Pair Corralation between Microsoft and LGI

Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than LGI. However, Microsoft is 1.56 times less risky than LGI. It trades about 0.09 of its potential returns per unit of risk. LGI is currently generating about 0.03 per unit of risk. If you would invest  23,866  in Microsoft on October 14, 2024 and sell it today you would earn a total of  18,029  from holding Microsoft or generate 75.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Microsoft  vs.  LGI

Microsoft

Risk-Adjusted Performance

0 of 100

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 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.

LGI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LGI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, LGI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and LGI

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

The idea behind Microsoft and LGI 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.