Correlation Between Microsoft and ROK Resources

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

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

Diversification Opportunities for Microsoft and ROK Resources

0.0

Correlation Coefficient

Microsoft  ROK Resources

Pay attention - limited upside

The 3 months correlation between Microsoft and ROK is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources 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 ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Microsoft i.e., Microsoft and ROK Resources go up and down completely randomly.

Pair Corralation between Microsoft and ROK Resources

Given the investment horizon of 90 days Microsoft is expected to generate 0.26 times more return on investment than ROK Resources. However, Microsoft is 3.88 times less risky than ROK Resources. It trades about 0.06 of its potential returns per unit of risk. ROK Resources is currently generating about -0.02 per unit of risk. If you would invest  36,854  in Microsoft on September 4, 2024 and sell it today you would earn a total of  6,266  from holding Microsoft or generate 17.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  ROK Resources

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.

ROK Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROK Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Microsoft and ROK Resources

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

The idea behind Microsoft and ROK Resources 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.