Correlation Between Microsoft and Farcent Enterprise

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

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

Diversification Opportunities for Microsoft and Farcent Enterprise

0.23

Correlation Coefficient

Microsoft  Farcent Enterprise

Modest diversification

The 3 months correlation between Microsoft and Farcent is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Farcent Enterprise Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farcent Enterprise 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 Farcent Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farcent Enterprise has no effect on the direction of Microsoft i.e., Microsoft and Farcent Enterprise go up and down completely randomly.

Pair Corralation between Microsoft and Farcent Enterprise

Given the investment horizon of 90 days Microsoft is expected to generate 2.93 times more return on investment than Farcent Enterprise. However, Microsoft is 2.93 times more volatile than Farcent Enterprise Co. It trades about 0.16 of its potential returns per unit of risk. Farcent Enterprise Co is currently generating about -0.12 per unit of risk. If you would invest  41,879  in Microsoft on September 25, 2024 and sell it today you would earn a total of  1,646  from holding Microsoft or generate 3.93% return on investment over 90 days.

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

Microsoft  vs.  Farcent Enterprise Co

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Farcent Enterprise

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Farcent Enterprise Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Farcent Enterprise is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Microsoft and Farcent Enterprise

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

The idea behind Microsoft and Farcent Enterprise Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.