Correlation Between Microsoft and Paradigm Value

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

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

Diversification Opportunities for Microsoft and Paradigm Value

0.26

Correlation Coefficient

Microsoft  Paradigm Value

Modest diversification

The 3 months correlation between Microsoft and Paradigm is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Paradigm Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm Value 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 Paradigm Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm Value has no effect on the direction of Microsoft i.e., Microsoft and Paradigm Value go up and down completely randomly.

Pair Corralation between Microsoft and Paradigm Value

Given the investment horizon of 90 days Microsoft is expected to generate 2.23 times less return on investment than Paradigm Value. In addition to that, Microsoft is 1.07 times more volatile than Paradigm Value Fund. It trades about 0.05 of its total potential returns per unit of risk. Paradigm Value Fund is currently generating about 0.12 per unit of volatility. If you would invest  6,032  in Paradigm Value Fund on September 2, 2024 and sell it today you would earn a total of  547.00  from holding Paradigm Value Fund or generate 9.07% return on investment over 90 days.

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

Microsoft  vs.  Paradigm Value Fund

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Paradigm Value

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm Value Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Paradigm Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Paradigm Value

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

The idea behind Microsoft and Paradigm Value Fund 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.