Correlation Between Microsoft and Pinnacle Value

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

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

Diversification Opportunities for Microsoft and Pinnacle Value

-0.26

Correlation Coefficient

Microsoft  Pinnacle Value

Very good diversification

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

Pair Corralation between Microsoft and Pinnacle Value

Given the investment horizon of 90 days Microsoft is expected to generate 0.39 times more return on investment than Pinnacle Value. However, Microsoft is 2.57 times less risky than Pinnacle Value. It trades about -0.23 of its potential returns per unit of risk. Pinnacle Value Fund is currently generating about -0.21 per unit of risk. If you would invest  44,602  in Microsoft on October 8, 2024 and sell it today you would lose (2,267) from holding Microsoft or give up 5.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Pinnacle Value Fund

Microsoft

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Pinnacle Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pinnacle Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Microsoft and Pinnacle Value

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

The idea behind Microsoft and Pinnacle 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.