Correlation Between Microsoft and Rio2

Can any of the company-specific risk be diversified away by investing in both Microsoft and Rio2 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 Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Rio2 Limited, you can compare the effects of market volatilities on Microsoft and Rio2 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 Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Rio2.

Diversification Opportunities for Microsoft and Rio2

0.52

Correlation Coefficient

Microsoft  Rio2

Very weak diversification

The 3 months correlation between Microsoft and Rio2 is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited 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 Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 Limited has no effect on the direction of Microsoft i.e., Microsoft and Rio2 go up and down completely randomly.

Pair Corralation between Microsoft and Rio2

Given the investment horizon of 90 days Microsoft is expected to generate 1.74 times less return on investment than Rio2. But when comparing it to its historical volatility, Microsoft is 2.68 times less risky than Rio2. It trades about 0.36 of its potential returns per unit of risk. Rio2 Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Rio2 Limited on April 29, 2025 and sell it today you would earn a total of  40.00  from holding Rio2 Limited or generate 54.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Microsoft  vs.  Rio2 Limited

Microsoft

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rio2 Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Rio2

The main advantage of trading using opposite Microsoft and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Microsoft and Rio2 Limited 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.