Correlation Between Microsoft and CD Projekt

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

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

Diversification Opportunities for Microsoft and CD Projekt

-0.46

Correlation Coefficient

Microsoft  CD Projekt

Very good diversification

The 3 months correlation between Microsoft and OTGLF is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CD Projekt SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CD Projekt SA 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 CD Projekt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CD Projekt SA has no effect on the direction of Microsoft i.e., Microsoft and CD Projekt go up and down completely randomly.

Pair Corralation between Microsoft and CD Projekt

Given the investment horizon of 90 days Microsoft is expected to under-perform the CD Projekt. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.82 times less risky than CD Projekt. The stock trades about -0.07 of its potential returns per unit of risk. The CD Projekt SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,440  in CD Projekt SA on December 2, 2024 and sell it today you would earn a total of  776.00  from holding CD Projekt SA or generate 17.48% return on investment over 90 days.

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

Microsoft  vs.  CD Projekt SA

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.

CD Projekt SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CD Projekt SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, CD Projekt reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and CD Projekt

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

The idea behind Microsoft and CD Projekt SA 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.