Correlation Between Microsoft and Pond Technologies

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

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

Diversification Opportunities for Microsoft and Pond Technologies

0.38

Correlation Coefficient

Microsoft  Pond Technologies

Weak diversification

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

Pair Corralation between Microsoft and Pond Technologies

Given the investment horizon of 90 days Microsoft is expected to generate 63.54 times less return on investment than Pond Technologies. But when comparing it to its historical volatility, Microsoft is 15.32 times less risky than Pond Technologies. It trades about 0.02 of its potential returns per unit of risk. Pond Technologies Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Pond Technologies Holdings on October 23, 2024 and sell it today you would earn a total of  0.00  from holding Pond Technologies Holdings or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  Pond Technologies Holdings

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Pond Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pond Technologies Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Pond Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Pond Technologies

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

The idea behind Microsoft and Pond Technologies Holdings 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.