Correlation Between Microsoft and RenaissanceRe Holdings

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

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

Diversification Opportunities for Microsoft and RenaissanceRe Holdings

0.27

Correlation Coefficient

Microsoft  RenaissanceRe Holdings

Modest diversification

The 3 months correlation between Microsoft and RenaissanceRe is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and RenaissanceRe Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenaissanceRe Holdings 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 RenaissanceRe Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenaissanceRe Holdings has no effect on the direction of Microsoft i.e., Microsoft and RenaissanceRe Holdings go up and down completely randomly.

Pair Corralation between Microsoft and RenaissanceRe Holdings

Given the investment horizon of 90 days Microsoft is expected to generate 1.73 times more return on investment than RenaissanceRe Holdings. However, Microsoft is 1.73 times more volatile than RenaissanceRe Holdings. It trades about -0.01 of its potential returns per unit of risk. RenaissanceRe Holdings is currently generating about -0.1 per unit of risk. If you would invest  41,466  in Microsoft on November 20, 2024 and sell it today you would lose (623.00) from holding Microsoft or give up 1.5% of portfolio value over 90 days.

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

Microsoft  vs.  RenaissanceRe Holdings

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 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.

RenaissanceRe Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Microsoft and RenaissanceRe Holdings

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

The idea behind Microsoft and RenaissanceRe Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.