Correlation Between Microsoft and Expat Poland

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

By analyzing existing cross correlation between Microsoft and Expat Poland WIG20, you can compare the effects of market volatilities on Microsoft and Expat Poland 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 Expat Poland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Expat Poland.

Diversification Opportunities for Microsoft and Expat Poland

0.38

Correlation Coefficient

Microsoft  Expat Poland

Weak diversification

The 3 months correlation between Microsoft and Expat is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Expat Poland WIG20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expat Poland WIG20 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 Expat Poland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expat Poland WIG20 has no effect on the direction of Microsoft i.e., Microsoft and Expat Poland go up and down completely randomly.

Pair Corralation between Microsoft and Expat Poland

Given the investment horizon of 90 days Microsoft is expected to generate 0.24 times more return on investment than Expat Poland. However, Microsoft is 4.13 times less risky than Expat Poland. It trades about 0.43 of its potential returns per unit of risk. Expat Poland WIG20 is currently generating about 0.06 per unit of risk. If you would invest  41,417  in Microsoft on September 16, 2024 and sell it today you would earn a total of  3,310  from holding Microsoft or generate 7.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Expat Poland WIG20

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Expat Poland WIG20

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Expat Poland WIG20 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Expat Poland 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 Expat Poland

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

The idea behind Microsoft and Expat Poland WIG20 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.