Correlation Between Microsoft and MFEC PCL

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

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

Diversification Opportunities for Microsoft and MFEC PCL

-0.13

Correlation Coefficient

Microsoft  MFEC PCL

Good diversification

The 3 months correlation between Microsoft and MFEC is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MFEC PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFEC PCL 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 MFEC PCL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFEC PCL has no effect on the direction of Microsoft i.e., Microsoft and MFEC PCL go up and down completely randomly.

Pair Corralation between Microsoft and MFEC PCL

Given the investment horizon of 90 days Microsoft is expected to under-perform the MFEC PCL. In addition to that, Microsoft is 1.28 times more volatile than MFEC PCL. It trades about -0.09 of its total potential returns per unit of risk. MFEC PCL is currently generating about -0.02 per unit of volatility. If you would invest  610.00  in MFEC PCL on December 27, 2024 and sell it today you would lose (10.00) from holding MFEC PCL or give up 1.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  MFEC PCL

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.

MFEC PCL

Risk-Adjusted Performance

Very Weak

Over the last 90 days MFEC PCL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, MFEC PCL is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and MFEC PCL

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

The idea behind Microsoft and MFEC PCL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.