Correlation Between Microsoft and Making Science

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

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

Diversification Opportunities for Microsoft and Making Science

-0.44

Correlation Coefficient

Microsoft  Making Science

Very good diversification

The 3 months correlation between Microsoft and Making is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Making Science Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Making Science Group 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 Making Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Making Science Group has no effect on the direction of Microsoft i.e., Microsoft and Making Science go up and down completely randomly.

Pair Corralation between Microsoft and Making Science

Given the investment horizon of 90 days Microsoft is expected to generate 1.02 times more return on investment than Making Science. However, Microsoft is 1.02 times more volatile than Making Science Group. It trades about 0.04 of its potential returns per unit of risk. Making Science Group is currently generating about -0.04 per unit of risk. If you would invest  42,717  in Microsoft on September 27, 2024 and sell it today you would earn a total of  1,095  from holding Microsoft or generate 2.56% return on investment over 90 days.

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

Microsoft  vs.  Making Science Group

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.

Making Science Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Making Science Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Making Science is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Microsoft and Making Science

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

The idea behind Microsoft and Making Science Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..