Correlation Between Microsoft and Matthews Japan

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

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

Diversification Opportunities for Microsoft and Matthews Japan

0.4

Correlation Coefficient

Microsoft  Matthews Japan

Very weak diversification

The 3 months correlation between Microsoft and Matthews is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Matthews Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews Japan 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 Matthews Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews Japan has no effect on the direction of Microsoft i.e., Microsoft and Matthews Japan go up and down completely randomly.

Pair Corralation between Microsoft and Matthews Japan

Given the investment horizon of 90 days Microsoft is expected to generate 8.0 times less return on investment than Matthews Japan. But when comparing it to its historical volatility, Microsoft is 1.2 times less risky than Matthews Japan. It trades about 0.01 of its potential returns per unit of risk. Matthews Japan Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,953  in Matthews Japan Fund on September 15, 2024 and sell it today you would earn a total of  157.00  from holding Matthews Japan Fund or generate 8.04% return on investment over 90 days.

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

Microsoft  vs.  Matthews Japan Fund

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Matthews Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Matthews Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Matthews Japan 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 Matthews Japan

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

The idea behind Microsoft and Matthews Japan Fund 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.