Correlation Between F1RA34 and Microsoft

Can any of the company-specific risk be diversified away by investing in both F1RA34 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 F1RA34 and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between F1RA34 and Microsoft, you can compare the effects of market volatilities on F1RA34 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 F1RA34 with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of F1RA34 and Microsoft.

Diversification Opportunities for F1RA34 and Microsoft

0.86

Correlation Coefficient

F1RA34  Microsoft

Very poor diversification

The 3 months correlation between F1RA34 and Microsoft is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding F1RA34 and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and F1RA34 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 F1RA34 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 F1RA34 i.e., F1RA34 and Microsoft go up and down completely randomly.

Pair Corralation between F1RA34 and Microsoft

Assuming the 90 days trading horizon F1RA34 is expected to generate 2.03 times more return on investment than Microsoft. However, F1RA34 is 2.03 times more volatile than Microsoft. It trades about 0.1 of its potential returns per unit of risk. Microsoft is currently generating about 0.15 per unit of risk. If you would invest  11,156  in F1RA34 on September 26, 2024 and sell it today you would earn a total of  2,117  from holding F1RA34 or generate 18.98% return on investment over 90 days.

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

F1RA34  vs.  Microsoft

F1RA34

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in F1RA34 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, F1RA34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with F1RA34 and Microsoft

The main advantage of trading using opposite F1RA34 and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if F1RA34 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 F1RA34 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.