Correlation Between Microsoft and Cogelec SA

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

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

Diversification Opportunities for Microsoft and Cogelec SA

0.02

Correlation Coefficient

Microsoft  Cogelec SA

Significant diversification

The 3 months correlation between Microsoft and Cogelec is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cogelec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogelec SA 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 Cogelec SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogelec SA has no effect on the direction of Microsoft i.e., Microsoft and Cogelec SA go up and down completely randomly.

Pair Corralation between Microsoft and Cogelec SA

Given the investment horizon of 90 days Microsoft is expected to generate 11.78 times less return on investment than Cogelec SA. But when comparing it to its historical volatility, Microsoft is 1.6 times less risky than Cogelec SA. It trades about 0.03 of its potential returns per unit of risk. Cogelec SA is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,140  in Cogelec SA on September 24, 2024 and sell it today you would earn a total of  370.00  from holding Cogelec SA or generate 32.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Microsoft  vs.  Cogelec SA

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Cogelec SA

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cogelec SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Cogelec SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Cogelec SA

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

The idea behind Microsoft and Cogelec SA 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.