Correlation Between Microsoft and Professional Waste

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

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

Diversification Opportunities for Microsoft and Professional Waste

0.08

Correlation Coefficient

Microsoft  Professional Waste

Significant diversification

The 3 months correlation between Microsoft and Professional is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Professional Waste Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professional Waste 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 Professional Waste. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professional Waste has no effect on the direction of Microsoft i.e., Microsoft and Professional Waste go up and down completely randomly.

Pair Corralation between Microsoft and Professional Waste

Given the investment horizon of 90 days Microsoft is expected to generate 46.21 times less return on investment than Professional Waste. But when comparing it to its historical volatility, Microsoft is 56.94 times less risky than Professional Waste. It trades about 0.09 of its potential returns per unit of risk. Professional Waste Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Professional Waste Technology on October 12, 2024 and sell it today you would lose (27.00) from holding Professional Waste Technology or give up 77.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Microsoft  vs.  Professional Waste Technology

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.

Professional Waste

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Professional Waste Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Professional Waste disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Professional Waste

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

The idea behind Microsoft and Professional Waste Technology 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.