Correlation Between Microsoft and MBANK

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

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

Diversification Opportunities for Microsoft and MBANK

-0.52

Correlation Coefficient

Microsoft  MBANK

Excellent diversification

The 3 months correlation between Microsoft and MBANK is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MBANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MBANK 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 MBANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MBANK has no effect on the direction of Microsoft i.e., Microsoft and MBANK go up and down completely randomly.

Pair Corralation between Microsoft and MBANK

Assuming the 90 days trading horizon Microsoft is expected to generate 1.05 times less return on investment than MBANK. But when comparing it to its historical volatility, Microsoft is 1.91 times less risky than MBANK. It trades about 0.1 of its potential returns per unit of risk. MBANK is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,805  in MBANK on September 29, 2024 and sell it today you would earn a total of  5,420  from holding MBANK or generate 79.65% 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.  MBANK

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MBANK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MBANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic 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 MBANK

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

The idea behind Microsoft and MBANK 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.