Correlation Between Microsoft and Cabana Target

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

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

Diversification Opportunities for Microsoft and Cabana Target

-0.08

Correlation Coefficient

Microsoft  Cabana Target

Good diversification

The 3 months correlation between Microsoft and Cabana is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cabana Target Drawdown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabana Target Drawdown 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 Cabana Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabana Target Drawdown has no effect on the direction of Microsoft i.e., Microsoft and Cabana Target go up and down completely randomly.

Pair Corralation between Microsoft and Cabana Target

Given the investment horizon of 90 days Microsoft is expected to under-perform the Cabana Target. In addition to that, Microsoft is 2.25 times more volatile than Cabana Target Drawdown. It trades about -0.11 of its total potential returns per unit of risk. Cabana Target Drawdown is currently generating about 0.05 per unit of volatility. If you would invest  2,421  in Cabana Target Drawdown on December 29, 2024 and sell it today you would earn a total of  52.00  from holding Cabana Target Drawdown or generate 2.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Cabana Target Drawdown

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.

Cabana Target Drawdown

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabana Target Drawdown are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Cabana Target is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Cabana Target

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

The idea behind Microsoft and Cabana Target Drawdown 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.