Correlation Between Performance Food and Microsoft

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

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

Diversification Opportunities for Performance Food and Microsoft

0.79

Correlation Coefficient

Performance Food  Microsoft

Poor diversification

The 3 months correlation between Performance and Microsoft is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Performance Food Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Performance Food 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 Performance Food Group 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 Performance Food i.e., Performance Food and Microsoft go up and down completely randomly.

Pair Corralation between Performance Food and Microsoft

Assuming the 90 days trading horizon Performance Food Group is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, Performance Food Group is 1.13 times less risky than Microsoft. The stock trades about -0.14 of its potential returns per unit of risk. The Microsoft is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  39,660  in Microsoft on September 24, 2024 and sell it today you would earn a total of  1,910  from holding Microsoft or generate 4.82% return on investment over 90 days.

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

Performance Food Group  vs.  Microsoft

Performance Food

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Performance Food unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Performance Food and Microsoft

The main advantage of trading using opposite Performance Food and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Performance Food 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 Performance Food Group 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.