Correlation Between Microsoft and DOLLAR

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

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

Diversification Opportunities for Microsoft and DOLLAR

-0.62

Correlation Coefficient

Microsoft  DOLLAR

Excellent diversification

The 3 months correlation between Microsoft and DOLLAR is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and DOLLAR TREE INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOLLAR TREE 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 DOLLAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOLLAR TREE INC has no effect on the direction of Microsoft i.e., Microsoft and DOLLAR go up and down completely randomly.

Pair Corralation between Microsoft and DOLLAR

Given the investment horizon of 90 days Microsoft is expected to generate 3.28 times more return on investment than DOLLAR. However, Microsoft is 3.28 times more volatile than DOLLAR TREE INC. It trades about 0.02 of its potential returns per unit of risk. DOLLAR TREE INC is currently generating about 0.01 per unit of risk. If you would invest  40,264  in Microsoft on October 2, 2024 and sell it today you would earn a total of  1,886  from holding Microsoft or generate 4.68% return on investment over 90 days.

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

Microsoft  vs.  DOLLAR TREE INC

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

DOLLAR TREE INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOLLAR TREE INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DOLLAR 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 DOLLAR

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

The idea behind Microsoft and DOLLAR TREE 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.