Correlation Between X FAB and Microsoft

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

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

Diversification Opportunities for X FAB and Microsoft

-0.07

Correlation Coefficient

X FAB  Microsoft

Good diversification

The 3 months correlation between XFB and Microsoft is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and Microsoft go up and down completely randomly.

Pair Corralation between X FAB and Microsoft

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 2.82 times more return on investment than Microsoft. However, X FAB is 2.82 times more volatile than Microsoft. It trades about 0.28 of its potential returns per unit of risk. Microsoft is currently generating about 0.13 per unit of risk. If you would invest  426.00  in X FAB Silicon Foundries on September 29, 2024 and sell it today you would earn a total of  75.00  from holding X FAB Silicon Foundries or generate 17.61% return on investment over 90 days.

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

X FAB Silicon Foundries  vs.  Microsoft

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 comparatively unsteady 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 X FAB and Microsoft

The main advantage of trading using opposite X FAB and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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 X FAB Silicon Foundries 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.

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.