Correlation Between Microsoft and Royalty Management

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

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

Diversification Opportunities for Microsoft and Royalty Management

-0.1

Correlation Coefficient

Microsoft  Royalty Management

Good diversification

The 3 months correlation between Microsoft and Royalty is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management 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 Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Microsoft i.e., Microsoft and Royalty Management go up and down completely randomly.

Pair Corralation between Microsoft and Royalty Management

Given the investment horizon of 90 days Microsoft is expected to under-perform the Royalty Management. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 18.21 times less risky than Royalty Management. The stock trades about -0.1 of its potential returns per unit of risk. The Royalty Management Holding is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.02  in Royalty Management Holding on December 23, 2024 and sell it today you would lose (0.43) from holding Royalty Management Holding or give up 21.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	26.23%
Values	Daily Returns

Microsoft  vs.  Royalty Management Holding

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Royalty Management

Risk-Adjusted Performance

Insignificant

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Royalty Management showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Royalty Management

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

The idea behind Microsoft and Royalty Management Holding 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.