Correlation Between Microsoft and ACAFP

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

By analyzing existing cross correlation between Microsoft and ACAFP 8125, you can compare the effects of market volatilities on Microsoft and ACAFP 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 ACAFP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and ACAFP.

Diversification Opportunities for Microsoft and ACAFP

-0.32

Correlation Coefficient

Microsoft  ACAFP

Very good diversification

The 3 months correlation between Microsoft and ACAFP is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ACAFP 8125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACAFP 8125 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 ACAFP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACAFP 8125 has no effect on the direction of Microsoft i.e., Microsoft and ACAFP go up and down completely randomly.

Pair Corralation between Microsoft and ACAFP

Given the investment horizon of 90 days Microsoft is expected to generate 1.4 times more return on investment than ACAFP. However, Microsoft is 1.4 times more volatile than ACAFP 8125. It trades about 0.06 of its potential returns per unit of risk. ACAFP 8125 is currently generating about -0.06 per unit of risk. If you would invest  34,287  in Microsoft on September 12, 2024 and sell it today you would earn a total of  10,046  from holding Microsoft or generate 29.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	42.05%
Values	Daily Returns

Microsoft  vs.  ACAFP 8125

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

ACAFP 8125

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ACAFP 8125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for ACAFP 8125 investors.

Pair Trading with Microsoft and ACAFP

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

The idea behind Microsoft and ACAFP 8125 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.