Correlation Between Microsoft and Merafe Resources

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

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

Diversification Opportunities for Microsoft and Merafe Resources

0.69

Correlation Coefficient

Microsoft  Merafe Resources

Poor diversification

The 3 months correlation between Microsoft and Merafe is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Merafe Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merafe 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 Merafe Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merafe Resources has no effect on the direction of Microsoft i.e., Microsoft and Merafe Resources go up and down completely randomly.

Pair Corralation between Microsoft and Merafe Resources

Given the investment horizon of 90 days Microsoft is expected to generate 0.27 times more return on investment than Merafe Resources. However, Microsoft is 3.65 times less risky than Merafe Resources. It trades about -0.25 of its potential returns per unit of risk. Merafe Resources Limited is currently generating about -0.07 per unit of risk. If you would invest  41,010  in Microsoft on December 4, 2024 and sell it today you would lose (2,149) from holding Microsoft or give up 5.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Merafe Resources Limited

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.

Merafe Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merafe Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Merafe Resources

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

The idea behind Microsoft and Merafe Resources Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.