Correlation Between Microsoft and Pershing Square

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

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

Diversification Opportunities for Microsoft and Pershing Square

0.78

Correlation Coefficient

Microsoft  Pershing Square

Poor diversification

The 3 months correlation between Microsoft and Pershing is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Pershing Square Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pershing Square Holdings 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 Pershing Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pershing Square Holdings has no effect on the direction of Microsoft i.e., Microsoft and Pershing Square go up and down completely randomly.

Pair Corralation between Microsoft and Pershing Square

Given the investment horizon of 90 days Microsoft is expected to generate 1.41 times less return on investment than Pershing Square. But when comparing it to its historical volatility, Microsoft is 1.05 times less risky than Pershing Square. It trades about 0.22 of its potential returns per unit of risk. Pershing Square Holdings is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,595  in Pershing Square Holdings on September 15, 2024 and sell it today you would earn a total of  344.00  from holding Pershing Square Holdings or generate 7.49% return on investment over 90 days.

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

Microsoft  vs.  Pershing Square Holdings

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pershing Square Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pershing Square Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Pershing Square 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 Pershing Square

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

The idea behind Microsoft and Pershing Square 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.