Correlation Between Microsoft and Shenzhen SDG

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

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

Diversification Opportunities for Microsoft and Shenzhen SDG

0.19

Correlation Coefficient

Microsoft  Shenzhen SDG

Average diversification

The 3 months correlation between Microsoft and Shenzhen is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service 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 Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of Microsoft i.e., Microsoft and Shenzhen SDG go up and down completely randomly.

Pair Corralation between Microsoft and Shenzhen SDG

Given the investment horizon of 90 days Microsoft is expected to generate 0.28 times more return on investment than Shenzhen SDG. However, Microsoft is 3.62 times less risky than Shenzhen SDG. It trades about 0.17 of its potential returns per unit of risk. Shenzhen SDG Service is currently generating about -0.06 per unit of risk. If you would invest  41,879  in Microsoft on September 24, 2024 and sell it today you would earn a total of  1,781  from holding Microsoft or generate 4.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Shenzhen SDG Service

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Shenzhen SDG Service

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen SDG Service are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen SDG sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Shenzhen SDG

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

The idea behind Microsoft and Shenzhen SDG Service 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.