Correlation Between Microsoft and Balanced Strategy

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

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

Diversification Opportunities for Microsoft and Balanced Strategy

0.49

Correlation Coefficient

Microsoft  Balanced Strategy

Very weak diversification

The 3 months correlation between Microsoft and Balanced is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Microsoft i.e., Microsoft and Balanced Strategy go up and down completely randomly.

Pair Corralation between Microsoft and Balanced Strategy

Given the investment horizon of 90 days Microsoft is expected to generate 2.21 times more return on investment than Balanced Strategy. However, Microsoft is 2.21 times more volatile than Balanced Strategy Fund. It trades about 0.19 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about -0.18 per unit of risk. If you would invest  41,879  in Microsoft on September 26, 2024 and sell it today you would earn a total of  2,054  from holding Microsoft or generate 4.9% return on investment over 90 days.

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

Microsoft  vs.  Balanced Strategy Fund

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

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.

Balanced Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balanced Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Balanced Strategy 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 Balanced Strategy

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

The idea behind Microsoft and Balanced Strategy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.