Correlation Between Microsoft and Exchange Listed

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

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

Diversification Opportunities for Microsoft and Exchange Listed

0.24

Correlation Coefficient

Microsoft  Exchange Listed

Modest diversification

The 3 months correlation between Microsoft and Exchange is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Exchange Listed Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Listed Funds 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 Exchange Listed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Listed Funds has no effect on the direction of Microsoft i.e., Microsoft and Exchange Listed go up and down completely randomly.

Pair Corralation between Microsoft and Exchange Listed

Given the investment horizon of 90 days Microsoft is expected to generate 1.99 times more return on investment than Exchange Listed. However, Microsoft is 1.99 times more volatile than Exchange Listed Funds. It trades about 0.01 of its potential returns per unit of risk. Exchange Listed Funds is currently generating about -0.03 per unit of risk. If you would invest  42,944  in Microsoft on September 29, 2024 and sell it today you would earn a total of  109.00  from holding Microsoft or generate 0.25% return on investment over 90 days.

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

Microsoft  vs.  Exchange Listed Funds

Microsoft

Risk-Adjusted Performance

0 of 100

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Exchange Listed Funds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exchange Listed Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Exchange Listed is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Exchange Listed

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

The idea behind Microsoft and Exchange Listed Funds 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.