Correlation Between Microsoft and Solar AS

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

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

Diversification Opportunities for Microsoft and Solar AS

0.78

Correlation Coefficient

Microsoft  Solar AS

Poor diversification

The 3 months correlation between Microsoft and Solar is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Solar AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar AS 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 Solar AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar AS has no effect on the direction of Microsoft i.e., Microsoft and Solar AS go up and down completely randomly.

Pair Corralation between Microsoft and Solar AS

Given the investment horizon of 90 days Microsoft is expected to generate 0.96 times more return on investment than Solar AS. However, Microsoft is 1.04 times less risky than Solar AS. It trades about -0.11 of its potential returns per unit of risk. Solar AS is currently generating about -0.12 per unit of risk. If you would invest  43,845  in Microsoft on December 24, 2024 and sell it today you would lose (4,719) from holding Microsoft or give up 10.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Microsoft  vs.  Solar AS

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.

Solar AS

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Microsoft and Solar AS

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

The idea behind Microsoft and Solar AS 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.

Check out your portfolio center.

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.