Correlation Between Microsoft and 512807AU2

Can any of the company-specific risk be diversified away by investing in both Microsoft and 512807AU2 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 512807AU2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and LAM RESEARCH PORATION, you can compare the effects of market volatilities on Microsoft and 512807AU2 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 512807AU2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and 512807AU2.

Diversification Opportunities for Microsoft and 512807AU2

-0.43

Correlation Coefficient

Microsoft  512807AU2

Very good diversification

The 3 months correlation between Microsoft and 512807AU2 is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LAM RESEARCH PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAM RESEARCH PORATION 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 512807AU2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAM RESEARCH PORATION has no effect on the direction of Microsoft i.e., Microsoft and 512807AU2 go up and down completely randomly.

Pair Corralation between Microsoft and 512807AU2

Given the investment horizon of 90 days Microsoft is expected to generate 3.14 times more return on investment than 512807AU2. However, Microsoft is 3.14 times more volatile than LAM RESEARCH PORATION. It trades about 0.05 of its potential returns per unit of risk. LAM RESEARCH PORATION is currently generating about -0.08 per unit of risk. If you would invest  40,872  in Microsoft on October 7, 2024 and sell it today you would earn a total of  1,463  from holding Microsoft or generate 3.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

Microsoft  vs.  LAM RESEARCH PORATION

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

LAM RESEARCH PORATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAM RESEARCH PORATION has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 512807AU2 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and 512807AU2

The main advantage of trading using opposite Microsoft and 512807AU2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, 512807AU2 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 512807AU2 will offset losses from the drop in 512807AU2's long position.

The idea behind Microsoft and LAM RESEARCH PORATION 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.