Correlation Between Microsoft and PC Connection

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

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

Diversification Opportunities for Microsoft and PC Connection

0.48

Correlation Coefficient

Microsoft  PC Connection

Very weak diversification

The 3 months correlation between Microsoft and PCC is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PC Connection in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PC Connection 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 PC Connection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PC Connection has no effect on the direction of Microsoft i.e., Microsoft and PC Connection go up and down completely randomly.

Pair Corralation between Microsoft and PC Connection

Given the investment horizon of 90 days Microsoft is expected to under-perform the PC Connection. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.62 times less risky than PC Connection. The stock trades about -0.05 of its potential returns per unit of risk. The PC Connection is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,882  in PC Connection on October 2, 2024 and sell it today you would earn a total of  768.00  from holding PC Connection or generate 13.06% return on investment over 90 days.

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

Microsoft  vs.  PC Connection

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.

PC Connection

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PC Connection are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PC Connection is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and PC Connection

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

The idea behind Microsoft and PC Connection 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .