Correlation Between Microsoft and PROVIDENCE

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

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

Diversification Opportunities for Microsoft and PROVIDENCE

-0.38

Correlation Coefficient

Microsoft  PROVIDENCE

Very good diversification

The 3 months correlation between Microsoft and PROVIDENCE is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PROVIDENCE HEALTH SVCS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROVIDENCE HEALTH SVCS 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 PROVIDENCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PROVIDENCE HEALTH SVCS has no effect on the direction of Microsoft i.e., Microsoft and PROVIDENCE go up and down completely randomly.

Pair Corralation between Microsoft and PROVIDENCE

Given the investment horizon of 90 days Microsoft is expected to generate 2.97 times more return on investment than PROVIDENCE. However, Microsoft is 2.97 times more volatile than PROVIDENCE HEALTH SVCS. It trades about -0.05 of its potential returns per unit of risk. PROVIDENCE HEALTH SVCS is currently generating about -0.58 per unit of risk. If you would invest  39,790  in Microsoft on December 27, 2024 and sell it today you would lose (732.00) from holding Microsoft or give up 1.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	13.04%
Values	Daily Returns

Microsoft  vs.  PROVIDENCE HEALTH SVCS

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.

PROVIDENCE HEALTH SVCS

Risk-Adjusted Performance

Modest

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

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

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