Correlation Between Microsoft and AM EAGLE

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

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

Diversification Opportunities for Microsoft and AM EAGLE

-0.59

Correlation Coefficient

Microsoft  AM EAGLE

Excellent diversification

The 3 months correlation between Microsoft and AFG is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and AM EAGLE OUTFITTERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AM EAGLE OUTFITTERS 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 AM EAGLE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AM EAGLE OUTFITTERS has no effect on the direction of Microsoft i.e., Microsoft and AM EAGLE go up and down completely randomly.

Pair Corralation between Microsoft and AM EAGLE

Assuming the 90 days trading horizon Microsoft is expected to generate 0.52 times more return on investment than AM EAGLE. However, Microsoft is 1.92 times less risky than AM EAGLE. It trades about 0.11 of its potential returns per unit of risk. AM EAGLE OUTFITTERS is currently generating about -0.04 per unit of risk. If you would invest  39,072  in Microsoft on September 20, 2024 and sell it today you would earn a total of  4,008  from holding Microsoft or generate 10.26% return on investment over 90 days.

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

Microsoft  vs.  AM EAGLE OUTFITTERS

Microsoft

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AM EAGLE OUTFITTERS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AM EAGLE OUTFITTERS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with Microsoft and AM EAGLE

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

The idea behind Microsoft and AM EAGLE OUTFITTERS 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.