Correlation Between Microsoft and Big Technologies

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

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

Diversification Opportunities for Microsoft and Big Technologies

-0.02

Correlation Coefficient

Microsoft  Big Technologies

Good diversification

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

Pair Corralation between Microsoft and Big Technologies

Given the investment horizon of 90 days Microsoft is expected to generate 5.67 times less return on investment than Big Technologies. But when comparing it to its historical volatility, Microsoft is 1.88 times less risky than Big Technologies. It trades about 0.05 of its potential returns per unit of risk. Big Technologies PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,000  in Big Technologies PLC on September 17, 2024 and sell it today you would earn a total of  2,900  from holding Big Technologies PLC or generate 26.36% return on investment over 90 days.

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

Microsoft  vs.  Big Technologies PLC

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Big Technologies PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Big Technologies PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Big Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Big Technologies

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

The idea behind Microsoft and Big Technologies PLC 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.