Correlation Between Microsoft and Retail Holdings

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

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

Diversification Opportunities for Microsoft and Retail Holdings

0.56

Correlation Coefficient

Microsoft  Retail Holdings

Very weak diversification

The 3 months correlation between Microsoft and Retail is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Retail Holdings NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retail Holdings NV 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 Retail Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retail Holdings NV has no effect on the direction of Microsoft i.e., Microsoft and Retail Holdings go up and down completely randomly.

Pair Corralation between Microsoft and Retail Holdings

If you would invest  42,973  in Microsoft on September 13, 2024 and sell it today you would earn a total of  1,926  from holding Microsoft or generate 4.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

Microsoft  vs.  Retail Holdings NV

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.

Retail Holdings NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Holdings NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Retail Holdings is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Retail Holdings

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

The idea behind Microsoft and Retail Holdings NV 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.