Correlation Between Okta and Microsoft

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

By analyzing existing cross correlation between Okta Inc and Microsoft, you can compare the effects of market volatilities on Okta and Microsoft 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 Okta with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Okta and Microsoft.

Diversification Opportunities for Okta and Microsoft

-0.23

Correlation Coefficient

Okta  Microsoft

Very good diversification

The 3 months correlation between Okta and Microsoft is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Okta Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Okta 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 Okta Inc are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Okta i.e., Okta and Microsoft go up and down completely randomly.

Pair Corralation between Okta and Microsoft

Given the investment horizon of 90 days Okta Inc is expected to generate 1.41 times more return on investment than Microsoft. However, Okta is 1.41 times more volatile than Microsoft. It trades about 0.14 of its potential returns per unit of risk. Microsoft is currently generating about -0.06 per unit of risk. If you would invest  7,642  in Okta Inc on November 27, 2024 and sell it today you would earn a total of  1,315  from holding Okta Inc or generate 17.21% return on investment over 90 days.

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

Okta Inc  vs.  Microsoft

Okta Inc

Risk-Adjusted Performance

Good

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

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 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.

Pair Trading with Okta and Microsoft

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

The idea behind Okta Inc and Microsoft 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.