Correlation Between Microsoft and BJs Restaurants

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

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

Diversification Opportunities for Microsoft and BJs Restaurants

0.42

Correlation Coefficient

Microsoft  BJs Restaurants

Very weak diversification

The 3 months correlation between Microsoft and BJs is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Microsoft i.e., Microsoft and BJs Restaurants go up and down completely randomly.

Pair Corralation between Microsoft and BJs Restaurants

Given the investment horizon of 90 days Microsoft is expected to under-perform the BJs Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.38 times less risky than BJs Restaurants. The stock trades about -0.11 of its potential returns per unit of risk. The BJs Restaurants is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,320  in BJs Restaurants on December 29, 2024 and sell it today you would lose (20.00) from holding BJs Restaurants or give up 0.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Microsoft  vs.  BJs Restaurants

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.

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and BJs Restaurants

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

The idea behind Microsoft and BJs Restaurants 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.