Correlation Between Microsoft and Medtronic Plc

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

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

Diversification Opportunities for Microsoft and Medtronic Plc

0.09

Correlation Coefficient

Microsoft  Medtronic Plc

Significant diversification

The 3 months correlation between Microsoft and Medtronic is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Medtronic plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic plc 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 Medtronic Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic plc has no effect on the direction of Microsoft i.e., Microsoft and Medtronic Plc go up and down completely randomly.

Pair Corralation between Microsoft and Medtronic Plc

Given the investment horizon of 90 days Microsoft is expected to under-perform the Medtronic Plc. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.52 times less risky than Medtronic Plc. The stock trades about -0.21 of its potential returns per unit of risk. The Medtronic plc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  24,789  in Medtronic plc on October 17, 2024 and sell it today you would earn a total of  851.00  from holding Medtronic plc or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Microsoft  vs.  Medtronic plc

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.

Medtronic plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Medtronic Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Medtronic Plc

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

The idea behind Microsoft and Medtronic plc 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.