Correlation Between Microsoft and Payden Regal

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

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

Diversification Opportunities for Microsoft and Payden Regal

0.4

Correlation Coefficient

Microsoft  Payden Regal

Very weak diversification

The 3 months correlation between Microsoft and Payden is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Payden Regal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Regal 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 Payden Regal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Regal has no effect on the direction of Microsoft i.e., Microsoft and Payden Regal go up and down completely randomly.

Pair Corralation between Microsoft and Payden Regal

Given the investment horizon of 90 days Microsoft is expected to generate 8.19 times more return on investment than Payden Regal. However, Microsoft is 8.19 times more volatile than The Payden Regal. It trades about 0.07 of its potential returns per unit of risk. The Payden Regal is currently generating about 0.11 per unit of risk. If you would invest  42,615  in Microsoft on September 12, 2024 and sell it today you would earn a total of  2,284  from holding Microsoft or generate 5.36% return on investment over 90 days.

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

Microsoft  vs.  The Payden Regal

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Payden Regal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Payden Regal are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Payden Regal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Payden Regal

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

The idea behind Microsoft and The Payden Regal 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.