Correlation Between Microsoft and MicroAlgo

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

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

Diversification Opportunities for Microsoft and MicroAlgo

0.63

Correlation Coefficient

Microsoft  MicroAlgo

Poor diversification

The 3 months correlation between Microsoft and MicroAlgo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MicroAlgo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroAlgo 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 MicroAlgo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroAlgo has no effect on the direction of Microsoft i.e., Microsoft and MicroAlgo go up and down completely randomly.

Pair Corralation between Microsoft and MicroAlgo

Given the investment horizon of 90 days Microsoft is expected to generate 0.1 times more return on investment than MicroAlgo. However, Microsoft is 9.53 times less risky than MicroAlgo. It trades about 0.22 of its potential returns per unit of risk. MicroAlgo is currently generating about -0.21 per unit of risk. If you would invest  40,944  in Microsoft on July 2, 2024 and sell it today you would earn a total of  1,858  from holding Microsoft or generate 4.54% return on investment over 90 days.

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

Microsoft  vs.  MicroAlgo

Microsoft

Risk-Adjusted Performance

0 of 100

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 latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

MicroAlgo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroAlgo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in October 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Microsoft and MicroAlgo

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

The idea behind Microsoft and MicroAlgo 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.