Correlation Between Microsoft and KRAKATAU STEEL

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

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

Diversification Opportunities for Microsoft and KRAKATAU STEEL

0.31

Correlation Coefficient

Microsoft  KRAKATAU STEEL

Weak diversification

The 3 months correlation between Microsoft and KRAKATAU is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and KRAKATAU STEEL B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRAKATAU STEEL B 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 KRAKATAU STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRAKATAU STEEL B has no effect on the direction of Microsoft i.e., Microsoft and KRAKATAU STEEL go up and down completely randomly.

Pair Corralation between Microsoft and KRAKATAU STEEL

Assuming the 90 days trading horizon Microsoft is expected to generate 5.26 times less return on investment than KRAKATAU STEEL. But when comparing it to its historical volatility, Microsoft is 3.15 times less risky than KRAKATAU STEEL. It trades about 0.09 of its potential returns per unit of risk. KRAKATAU STEEL B is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.40  in KRAKATAU STEEL B on September 22, 2024 and sell it today you would earn a total of  0.20  from holding KRAKATAU STEEL B or generate 50.0% return on investment over 90 days.

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

Microsoft  vs.  KRAKATAU STEEL B

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and KRAKATAU STEEL

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

The idea behind Microsoft and KRAKATAU STEEL B 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.