Correlation Between Microsoft and Technology One

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

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

Diversification Opportunities for Microsoft and Technology One

0.64

Correlation Coefficient

Microsoft  Technology One

Poor diversification

The 3 months correlation between Microsoft and Technology is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Technology One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology One 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 Technology One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology One has no effect on the direction of Microsoft i.e., Microsoft and Technology One go up and down completely randomly.

Pair Corralation between Microsoft and Technology One

Given the investment horizon of 90 days Microsoft is expected to generate 9.46 times less return on investment than Technology One. But when comparing it to its historical volatility, Microsoft is 1.37 times less risky than Technology One. It trades about 0.03 of its potential returns per unit of risk. Technology One is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,387  in Technology One on October 8, 2024 and sell it today you would earn a total of  679.00  from holding Technology One or generate 28.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Technology One

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Technology One

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Technology One are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Technology One unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Technology One

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

The idea behind Microsoft and Technology One 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..