Correlation Between Microsoft and Medical Facilities

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

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

Diversification Opportunities for Microsoft and Medical Facilities

-0.24

Correlation Coefficient

Microsoft  Medical Facilities

Very good diversification

The 3 months correlation between Microsoft and Medical is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Medical Facilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Facilities 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 Medical Facilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Facilities has no effect on the direction of Microsoft i.e., Microsoft and Medical Facilities go up and down completely randomly.

Pair Corralation between Microsoft and Medical Facilities

Given the investment horizon of 90 days Microsoft is expected to under-perform the Medical Facilities. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.36 times less risky than Medical Facilities. The stock trades about -0.11 of its potential returns per unit of risk. The Medical Facilities is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,079  in Medical Facilities on December 30, 2024 and sell it today you would earn a total of  40.00  from holding Medical Facilities or generate 3.71% return on investment over 90 days.

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

Microsoft  vs.  Medical Facilities

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.

Medical Facilities

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Facilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Medical Facilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Medical Facilities

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

The idea behind Microsoft and Medical Facilities 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.