Correlation Between Microsoft and Capital Securities

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

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

Diversification Opportunities for Microsoft and Capital Securities

-0.17

Correlation Coefficient

Microsoft  Capital Securities

Good diversification

The 3 months correlation between Microsoft and Capital is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital Securities Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities Corp 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 Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities Corp has no effect on the direction of Microsoft i.e., Microsoft and Capital Securities go up and down completely randomly.

Pair Corralation between Microsoft and Capital Securities

Given the investment horizon of 90 days Microsoft is expected to generate 1.25 times less return on investment than Capital Securities. In addition to that, Microsoft is 1.05 times more volatile than Capital Securities Corp. It trades about 0.05 of its total potential returns per unit of risk. Capital Securities Corp is currently generating about 0.07 per unit of volatility. If you would invest  2,180  in Capital Securities Corp on September 1, 2024 and sell it today you would earn a total of  105.00  from holding Capital Securities Corp or generate 4.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Capital Securities Corp

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Capital Securities Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Securities Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Capital Securities 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 Capital Securities

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

The idea behind Microsoft and Capital Securities Corp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.