Correlation Between Microsoft and Annaly Capital

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

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

Diversification Opportunities for Microsoft and Annaly Capital

0.46

Correlation Coefficient

Microsoft  Annaly Capital

Very weak diversification

The 3 months correlation between Microsoft and Annaly is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Annaly Capital Management, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Annaly Capital Manag 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 Annaly Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Annaly Capital Manag has no effect on the direction of Microsoft i.e., Microsoft and Annaly Capital go up and down completely randomly.

Pair Corralation between Microsoft and Annaly Capital

Assuming the 90 days trading horizon Microsoft is expected to generate 0.92 times more return on investment than Annaly Capital. However, Microsoft is 1.08 times less risky than Annaly Capital. It trades about 0.16 of its potential returns per unit of risk. Annaly Capital Management, is currently generating about 0.13 per unit of risk. If you would invest  9,363  in Microsoft on October 7, 2024 and sell it today you would earn a total of  1,520  from holding Microsoft or generate 16.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.67%
Values	Daily Returns

Microsoft  vs.  Annaly Capital Management,

Microsoft

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Annaly Capital Manag

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Annaly Capital Management, are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Annaly Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Annaly Capital

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

The idea behind Microsoft and Annaly Capital Management, 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.