Correlation Between Microsoft and WOLFDEN RES

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

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

Diversification Opportunities for Microsoft and WOLFDEN RES

0.03

Correlation Coefficient

Microsoft  WOLFDEN RES

Significant diversification

The 3 months correlation between Microsoft and WOLFDEN is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WOLFDEN RES P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WOLFDEN RES P 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 WOLFDEN RES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WOLFDEN RES P has no effect on the direction of Microsoft i.e., Microsoft and WOLFDEN RES go up and down completely randomly.

Pair Corralation between Microsoft and WOLFDEN RES

Given the investment horizon of 90 days Microsoft is expected to under-perform the WOLFDEN RES. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 29.17 times less risky than WOLFDEN RES. The stock trades about -0.19 of its potential returns per unit of risk. The WOLFDEN RES P is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2.70  in WOLFDEN RES P on October 10, 2024 and sell it today you would lose (0.30) from holding WOLFDEN RES P or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Microsoft  vs.  WOLFDEN RES P

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

WOLFDEN RES P

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WOLFDEN RES P are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WOLFDEN RES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and WOLFDEN RES

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

The idea behind Microsoft and WOLFDEN RES P 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.