Correlation Between Microsoft and Adyen NV

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

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

Diversification Opportunities for Microsoft and Adyen NV

0.4

Correlation Coefficient

Microsoft  Adyen NV

Very weak diversification

The 3 months correlation between Microsoft and Adyen is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Adyen NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adyen NV 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 Adyen NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adyen NV has no effect on the direction of Microsoft i.e., Microsoft and Adyen NV go up and down completely randomly.

Pair Corralation between Microsoft and Adyen NV

Given the investment horizon of 90 days Microsoft is expected to generate 2.38 times less return on investment than Adyen NV. But when comparing it to its historical volatility, Microsoft is 2.16 times less risky than Adyen NV. It trades about 0.02 of its potential returns per unit of risk. Adyen NV is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  150,900  in Adyen NV on September 23, 2024 and sell it today you would earn a total of  1,400  from holding Adyen NV or generate 0.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Adyen NV

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.

Adyen NV

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adyen NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Adyen NV is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Adyen NV

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

The idea behind Microsoft and Adyen NV 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.