Correlation Between Microsoft and Forest Water

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

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

Diversification Opportunities for Microsoft and Forest Water

0.18

Correlation Coefficient

Microsoft  Forest Water

Average diversification

The 3 months correlation between Microsoft and Forest is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Forest Water Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forest Water Environ 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 Forest Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forest Water Environ has no effect on the direction of Microsoft i.e., Microsoft and Forest Water go up and down completely randomly.

Pair Corralation between Microsoft and Forest Water

Given the investment horizon of 90 days Microsoft is expected to generate 1.08 times less return on investment than Forest Water. But when comparing it to its historical volatility, Microsoft is 1.85 times less risky than Forest Water. It trades about 0.06 of its potential returns per unit of risk. Forest Water Environmental is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,940  in Forest Water Environmental on August 31, 2024 and sell it today you would earn a total of  725.00  from holding Forest Water Environmental or generate 24.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.13%
Values	Daily Returns

Microsoft  vs.  Forest Water Environmental

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.

Forest Water Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forest Water Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Microsoft and Forest Water

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

The idea behind Microsoft and Forest Water Environmental 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.