Correlation Between Microsoft and Major Cineplex

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

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

Diversification Opportunities for Microsoft and Major Cineplex

0.12

Correlation Coefficient

Microsoft  Major Cineplex

Average diversification

The 3 months correlation between Microsoft and Major is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Major Cineplex Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Cineplex Group 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 Major Cineplex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Cineplex Group has no effect on the direction of Microsoft i.e., Microsoft and Major Cineplex go up and down completely randomly.

Pair Corralation between Microsoft and Major Cineplex

Given the investment horizon of 90 days Microsoft is expected to under-perform the Major Cineplex. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.6 times less risky than Major Cineplex. The stock trades about -0.07 of its potential returns per unit of risk. The Major Cineplex Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Major Cineplex Group on October 22, 2024 and sell it today you would lose (20.00) from holding Major Cineplex Group or give up 1.38% of portfolio value over 90 days.

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

Microsoft  vs.  Major Cineplex Group

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

Major Cineplex Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Cineplex Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and Major Cineplex

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

The idea behind Microsoft and Major Cineplex Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.