Correlation Between Microsoft and Moo Deng

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

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

Diversification Opportunities for Microsoft and Moo Deng

0.25

Correlation Coefficient

Microsoft  Moo Deng

Modest diversification

The 3 months correlation between Microsoft and Moo is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Moo Deng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moo Deng 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 Moo Deng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moo Deng has no effect on the direction of Microsoft i.e., Microsoft and Moo Deng go up and down completely randomly.

Pair Corralation between Microsoft and Moo Deng

Given the investment horizon of 90 days Microsoft is expected to generate 758.26 times less return on investment than Moo Deng. But when comparing it to its historical volatility, Microsoft is 134.94 times less risky than Moo Deng. It trades about 0.03 of its potential returns per unit of risk. Moo Deng is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Moo Deng on October 8, 2024 and sell it today you would earn a total of  29.00  from holding Moo Deng or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Moo Deng

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.

Moo Deng

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moo Deng are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, Moo Deng reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Moo Deng

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

The idea behind Microsoft and Moo Deng 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.