Correlation Between Microsoft and PCB Bancorp

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

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

Diversification Opportunities for Microsoft and PCB Bancorp

0.37

Correlation Coefficient

Microsoft  PCB Bancorp

Weak diversification

The 3 months correlation between Microsoft and PCB is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PCB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCB Bancorp 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 PCB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCB Bancorp has no effect on the direction of Microsoft i.e., Microsoft and PCB Bancorp go up and down completely randomly.

Pair Corralation between Microsoft and PCB Bancorp

Given the investment horizon of 90 days Microsoft is expected to generate 0.86 times more return on investment than PCB Bancorp. However, Microsoft is 1.16 times less risky than PCB Bancorp. It trades about -0.06 of its potential returns per unit of risk. PCB Bancorp is currently generating about -0.09 per unit of risk. If you would invest  42,261  in Microsoft on November 29, 2024 and sell it today you would lose (2,288) from holding Microsoft or give up 5.41% of portfolio value over 90 days.

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

Microsoft  vs.  PCB Bancorp

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 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.

PCB Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days PCB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and PCB Bancorp

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

The idea behind Microsoft and PCB Bancorp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.