Correlation Between Microsoft and SUKU

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

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

Diversification Opportunities for Microsoft and SUKU

0.18

Correlation Coefficient

Microsoft  SUKU

Average diversification

The 3 months correlation between Microsoft and SUKU is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SUKU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUKU 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 SUKU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUKU has no effect on the direction of Microsoft i.e., Microsoft and SUKU go up and down completely randomly.

Pair Corralation between Microsoft and SUKU

Given the investment horizon of 90 days Microsoft is expected to generate 11.9 times less return on investment than SUKU. But when comparing it to its historical volatility, Microsoft is 3.94 times less risky than SUKU. It trades about 0.05 of its potential returns per unit of risk. SUKU is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6.06  in SUKU on September 1, 2024 and sell it today you would earn a total of  3.17  from holding SUKU or generate 52.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Microsoft  vs.  SUKU

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

SUKU

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SUKU are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SUKU exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and SUKU

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

The idea behind Microsoft and SUKU 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.