Correlation Between Microsoft and Uber Technologies

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

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

Diversification Opportunities for Microsoft and Uber Technologies

-0.16

Correlation Coefficient

Microsoft  Uber Technologies

Good diversification

The 3 months correlation between Microsoft and Uber is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Uber Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uber Technologies 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 Uber Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uber Technologies has no effect on the direction of Microsoft i.e., Microsoft and Uber Technologies go up and down completely randomly.

Pair Corralation between Microsoft and Uber Technologies

Assuming the 90 days trading horizon Microsoft is expected to generate 1.47 times less return on investment than Uber Technologies. But when comparing it to its historical volatility, Microsoft is 1.64 times less risky than Uber Technologies. It trades about 0.11 of its potential returns per unit of risk. Uber Technologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,043  in Uber Technologies on September 14, 2024 and sell it today you would earn a total of  6,364  from holding Uber Technologies or generate 209.14% return on investment over 90 days.

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

Microsoft  vs.  Uber Technologies

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.

Uber Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Uber Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Uber Technologies 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 Uber Technologies

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

The idea behind Microsoft and Uber Technologies 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.