Correlation Between Microsoft and Ocean Biomedical

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

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

Diversification Opportunities for Microsoft and Ocean Biomedical

-0.31

Correlation Coefficient

Microsoft  Ocean Biomedical

Very good diversification

The 3 months correlation between Microsoft and Ocean is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ocean Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Biomedical 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 Ocean Biomedical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Biomedical has no effect on the direction of Microsoft i.e., Microsoft and Ocean Biomedical go up and down completely randomly.

Pair Corralation between Microsoft and Ocean Biomedical

Given the investment horizon of 90 days Microsoft is expected to generate 3.02 times less return on investment than Ocean Biomedical. But when comparing it to its historical volatility, Microsoft is 10.16 times less risky than Ocean Biomedical. It trades about 0.03 of its potential returns per unit of risk. Ocean Biomedical is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.88  in Ocean Biomedical on October 8, 2024 and sell it today you would lose (1.33) from holding Ocean Biomedical or give up 34.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.06%
Values	Daily Returns

Microsoft  vs.  Ocean Biomedical

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.

Ocean Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Biomedical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady basic indicators, Ocean Biomedical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microsoft and Ocean Biomedical

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

The idea behind Microsoft and Ocean Biomedical 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.