Correlation Between Microsoft and CARDINAL

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

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

Diversification Opportunities for Microsoft and CARDINAL

0.01

Correlation Coefficient

Microsoft  CARDINAL

Significant diversification

The 3 months correlation between Microsoft and CARDINAL is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CARDINAL HEALTH INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARDINAL HEALTH INC 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 CARDINAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARDINAL HEALTH INC has no effect on the direction of Microsoft i.e., Microsoft and CARDINAL go up and down completely randomly.

Pair Corralation between Microsoft and CARDINAL

Given the investment horizon of 90 days Microsoft is expected to generate 1.21 times more return on investment than CARDINAL. However, Microsoft is 1.21 times more volatile than CARDINAL HEALTH INC. It trades about 0.04 of its potential returns per unit of risk. CARDINAL HEALTH INC is currently generating about 0.03 per unit of risk. If you would invest  33,408  in Microsoft on December 2, 2024 and sell it today you would earn a total of  6,291  from holding Microsoft or generate 18.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	67.57%
Values	Daily Returns

Microsoft  vs.  CARDINAL HEALTH INC

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.

CARDINAL HEALTH INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARDINAL HEALTH INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CARDINAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and CARDINAL

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

The idea behind Microsoft and CARDINAL HEALTH INC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.