Correlation Between Microsoft and SIERRA METALS

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

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

Diversification Opportunities for Microsoft and SIERRA METALS

-0.21

Correlation Coefficient

Microsoft  SIERRA METALS

Very good diversification

The 3 months correlation between Microsoft and SIERRA is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SIERRA METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIERRA METALS 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 SIERRA METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIERRA METALS has no effect on the direction of Microsoft i.e., Microsoft and SIERRA METALS go up and down completely randomly.

Pair Corralation between Microsoft and SIERRA METALS

Assuming the 90 days trading horizon Microsoft is expected to generate 1.25 times less return on investment than SIERRA METALS. But when comparing it to its historical volatility, Microsoft is 2.06 times less risky than SIERRA METALS. It trades about 0.1 of its potential returns per unit of risk. SIERRA METALS is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  51.00  in SIERRA METALS on September 25, 2024 and sell it today you would earn a total of  5.00  from holding SIERRA METALS or generate 9.8% return on investment over 90 days.

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

Microsoft  vs.  SIERRA METALS

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 comparatively uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SIERRA METALS

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days SIERRA METALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak basic indicators, SIERRA METALS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and SIERRA METALS

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

The idea behind Microsoft and SIERRA METALS 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.