Correlation Between Microsoft and Healthcare Realty

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

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

Diversification Opportunities for Microsoft and Healthcare Realty

0.84

Correlation Coefficient

Microsoft  Healthcare Realty

Very poor diversification

The 3 months correlation between Microsoft and Healthcare is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Healthcare Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare Realty Trust 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 Healthcare Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare Realty Trust has no effect on the direction of Microsoft i.e., Microsoft and Healthcare Realty go up and down completely randomly.

Pair Corralation between Microsoft and Healthcare Realty

Assuming the 90 days trading horizon Microsoft is expected to generate 0.78 times more return on investment than Healthcare Realty. However, Microsoft is 1.28 times less risky than Healthcare Realty. It trades about 0.1 of its potential returns per unit of risk. Healthcare Realty Trust is currently generating about 0.04 per unit of risk. If you would invest  10,041  in Microsoft on October 24, 2024 and sell it today you would earn a total of  955.00  from holding Microsoft or generate 9.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	88.14%
Values	Daily Returns

Microsoft  vs.  Healthcare Realty Trust

Microsoft

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Healthcare Realty Trust

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Microsoft and Healthcare Realty

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

The idea behind Microsoft and Healthcare Realty Trust 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .