Correlation Between Microsoft and PHENIXFIN

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

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

Diversification Opportunities for Microsoft and PHENIXFIN

0.68

Correlation Coefficient

Microsoft  PHENIXFIN

Poor diversification

The 3 months correlation between Microsoft and PHENIXFIN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PHENIXFIN P DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHENIXFIN P DL 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 PHENIXFIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHENIXFIN P DL has no effect on the direction of Microsoft i.e., Microsoft and PHENIXFIN go up and down completely randomly.

Pair Corralation between Microsoft and PHENIXFIN

Assuming the 90 days trading horizon Microsoft is expected to generate 2.79 times less return on investment than PHENIXFIN. In addition to that, Microsoft is 1.2 times more volatile than PHENIXFIN P DL. It trades about 0.12 of its total potential returns per unit of risk. PHENIXFIN P DL is currently generating about 0.39 per unit of volatility. If you would invest  4,360  in PHENIXFIN P DL on September 28, 2024 and sell it today you would earn a total of  320.00  from holding PHENIXFIN P DL or generate 7.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  PHENIXFIN P DL

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 fragile basic indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PHENIXFIN P DL

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PHENIXFIN P DL are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, PHENIXFIN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and PHENIXFIN

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

The idea behind Microsoft and PHENIXFIN P DL 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.