Correlation Between Microsoft and Magna Mining

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

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

Diversification Opportunities for Microsoft and Magna Mining

0.58

Correlation Coefficient

Microsoft  Magna Mining

Very weak diversification

The 3 months correlation between Microsoft and Magna is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Magna Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna Mining 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 Magna Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna Mining has no effect on the direction of Microsoft i.e., Microsoft and Magna Mining go up and down completely randomly.

Pair Corralation between Microsoft and Magna Mining

Given the investment horizon of 90 days Microsoft is expected to generate 10.3 times less return on investment than Magna Mining. But when comparing it to its historical volatility, Microsoft is 2.78 times less risky than Magna Mining. It trades about 0.02 of its potential returns per unit of risk. Magna Mining is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  115.00  in Magna Mining on October 4, 2024 and sell it today you would earn a total of  21.00  from holding Magna Mining or generate 18.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Microsoft  vs.  Magna Mining

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Magna Mining

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magna Mining are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Magna Mining showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Magna Mining

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

The idea behind Microsoft and Magna Mining 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.