Correlation Between Microsoft and Expat Czech

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

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

Diversification Opportunities for Microsoft and Expat Czech

0.44

Correlation Coefficient

Microsoft  Expat Czech

Very weak diversification

The 3 months correlation between Microsoft and Expat is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Expat Czech PX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expat Czech PX 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 Expat Czech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expat Czech PX has no effect on the direction of Microsoft i.e., Microsoft and Expat Czech go up and down completely randomly.

Pair Corralation between Microsoft and Expat Czech

Assuming the 90 days trading horizon Microsoft is expected to generate 2.22 times more return on investment than Expat Czech. However, Microsoft is 2.22 times more volatile than Expat Czech PX. It trades about 0.06 of its potential returns per unit of risk. Expat Czech PX is currently generating about 0.11 per unit of risk. If you would invest  37,820  in Microsoft on August 17, 2024 and sell it today you would earn a total of  1,740  from holding Microsoft or generate 4.6% return on investment over 90 days.

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

Microsoft  vs.  Expat Czech PX

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Expat Czech PX

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Expat Czech PX are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Expat Czech is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Expat Czech

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

The idea behind Microsoft and Expat Czech PX 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.