Correlation Between F5 Networks and Microsoft

Can any of the company-specific risk be diversified away by investing in both F5 Networks 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 F5 Networks and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between F5 Networks and Microsoft, you can compare the effects of market volatilities on F5 Networks 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 F5 Networks with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of F5 Networks and Microsoft.

Diversification Opportunities for F5 Networks and Microsoft

0.72

Correlation Coefficient

F5 Networks  Microsoft

Poor diversification

The 3 months correlation between FFIV and Microsoft is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding F5 Networks and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and F5 Networks 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 F5 Networks 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 F5 Networks i.e., F5 Networks and Microsoft go up and down completely randomly.

Pair Corralation between F5 Networks and Microsoft

Assuming the 90 days trading horizon F5 Networks is expected to generate 2.07 times more return on investment than Microsoft. However, F5 Networks is 2.07 times more volatile than Microsoft. It trades about 0.13 of its potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of risk. If you would invest  365,000  in F5 Networks on September 25, 2024 and sell it today you would earn a total of  99,253  from holding F5 Networks or generate 27.19% return on investment over 90 days.

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

F5 Networks  vs.  Microsoft

F5 Networks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in F5 Networks are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, F5 Networks showed solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Microsoft is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with F5 Networks and Microsoft

The main advantage of trading using opposite F5 Networks and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if F5 Networks 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 F5 Networks 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.