Correlation Between Microsoft and Liberty All

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

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

Diversification Opportunities for Microsoft and Liberty All

0.71

Correlation Coefficient

Microsoft  Liberty All

Poor diversification

The 3 months correlation between Microsoft and Liberty is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Liberty All Star in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty All Star 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 Liberty All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty All Star has no effect on the direction of Microsoft i.e., Microsoft and Liberty All go up and down completely randomly.

Pair Corralation between Microsoft and Liberty All

Given the investment horizon of 90 days Microsoft is expected to under-perform the Liberty All. In addition to that, Microsoft is 1.71 times more volatile than Liberty All Star. It trades about -0.11 of its total potential returns per unit of risk. Liberty All Star is currently generating about -0.07 per unit of volatility. If you would invest  683.00  in Liberty All Star on December 30, 2024 and sell it today you would lose (29.00) from holding Liberty All Star or give up 4.25% of portfolio value over 90 days.

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

Microsoft  vs.  Liberty All Star

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.

Liberty All Star

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty All Star has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Liberty All 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 Liberty All

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

The idea behind Microsoft and Liberty All Star 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..