Correlation Between Microsoft and Australian Potash

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

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

Diversification Opportunities for Microsoft and Australian Potash

-0.62

Correlation Coefficient

Microsoft  Australian Potash

Excellent diversification

The 3 months correlation between Microsoft and Australian is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Australian Potash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Potash 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 Australian Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Potash has no effect on the direction of Microsoft i.e., Microsoft and Australian Potash go up and down completely randomly.

Pair Corralation between Microsoft and Australian Potash

Given the investment horizon of 90 days Microsoft is expected to generate 0.11 times more return on investment than Australian Potash. However, Microsoft is 8.77 times less risky than Australian Potash. It trades about 0.09 of its potential returns per unit of risk. Australian Potash is currently generating about 0.0 per unit of risk. If you would invest  23,712  in Microsoft on September 19, 2024 and sell it today you would earn a total of  20,027  from holding Microsoft or generate 84.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.0%
Values	Daily Returns

Microsoft  vs.  Australian Potash

Microsoft

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Australian Potash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Potash has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Australian Potash is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Australian Potash

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

The idea behind Microsoft and Australian Potash 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.