Correlation Between Microsoft and Affinity Bancshares

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

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

Diversification Opportunities for Microsoft and Affinity Bancshares

0.28

Correlation Coefficient

Microsoft  Affinity Bancshares

Modest diversification

The 3 months correlation between Microsoft and Affinity is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares 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 Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Microsoft i.e., Microsoft and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Microsoft and Affinity Bancshares

Given the investment horizon of 90 days Microsoft is expected to under-perform the Affinity Bancshares. In addition to that, Microsoft is 2.19 times more volatile than Affinity Bancshares. It trades about -0.04 of its total potential returns per unit of risk. Affinity Bancshares is currently generating about 0.03 per unit of volatility. If you would invest  2,140  in Affinity Bancshares on August 31, 2024 and sell it today you would earn a total of  10.00  from holding Affinity Bancshares or generate 0.47% return on investment over 90 days.

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

Microsoft  vs.  Affinity Bancshares

Microsoft

Risk-Adjusted Performance

3 of 100

Weak

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.

Affinity Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Affinity Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Affinity Bancshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Microsoft and Affinity Bancshares

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

The idea behind Microsoft and Affinity Bancshares 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.