Correlation Between Microsoft and SK Growth

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

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

Diversification Opportunities for Microsoft and SK Growth

-0.1

Correlation Coefficient

Microsoft  SK Growth

Good diversification

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

Pair Corralation between Microsoft and SK Growth

Given the investment horizon of 90 days Microsoft is expected to generate 28.15 times less return on investment than SK Growth. In addition to that, Microsoft is 1.3 times more volatile than SK Growth Opportunities. It trades about 0.02 of its total potential returns per unit of risk. SK Growth Opportunities is currently generating about 0.8 per unit of volatility. If you would invest  1,142  in SK Growth Opportunities on October 23, 2024 and sell it today you would earn a total of  39.00  from holding SK Growth Opportunities or generate 3.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	6.67%
Values	Daily Returns

Microsoft  vs.  SK Growth Opportunities

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

SK Growth Opportunities

Risk-Adjusted Performance

0 of 100

Market Crasher

Over the last 90 days SK Growth Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively abnormal basic indicators, SK Growth unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and SK Growth

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

The idea behind Microsoft and SK Growth Opportunities 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.