Correlation Between Microsoft and Sanan Optoelectronics

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

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

Diversification Opportunities for Microsoft and Sanan Optoelectronics

-0.3

Correlation Coefficient

Microsoft  Sanan Optoelectronics

Very good diversification

The 3 months correlation between Microsoft and Sanan is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sanan Optoelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanan Optoelectronics 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 Sanan Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanan Optoelectronics has no effect on the direction of Microsoft i.e., Microsoft and Sanan Optoelectronics go up and down completely randomly.

Pair Corralation between Microsoft and Sanan Optoelectronics

Given the investment horizon of 90 days Microsoft is expected to generate 6.0 times less return on investment than Sanan Optoelectronics. But when comparing it to its historical volatility, Microsoft is 2.45 times less risky than Sanan Optoelectronics. It trades about 0.06 of its potential returns per unit of risk. Sanan Optoelectronics Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  973.00  in Sanan Optoelectronics Co on September 20, 2024 and sell it today you would earn a total of  282.00  from holding Sanan Optoelectronics Co or generate 28.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Microsoft  vs.  Sanan Optoelectronics Co

Microsoft

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Sanan Optoelectronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sanan Optoelectronics Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sanan Optoelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Sanan Optoelectronics

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

The idea behind Microsoft and Sanan Optoelectronics 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.