Correlation Between Microsoft and Bannerman Resources

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

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

Diversification Opportunities for Microsoft and Bannerman Resources

-0.47

Correlation Coefficient

Microsoft  Bannerman Resources

Very good diversification

The 3 months correlation between Microsoft and Bannerman is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bannerman Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bannerman Resources 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 Bannerman Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bannerman Resources has no effect on the direction of Microsoft i.e., Microsoft and Bannerman Resources go up and down completely randomly.

Pair Corralation between Microsoft and Bannerman Resources

Given the investment horizon of 90 days Microsoft is expected to generate 0.32 times more return on investment than Bannerman Resources. However, Microsoft is 3.1 times less risky than Bannerman Resources. It trades about 0.06 of its potential returns per unit of risk. Bannerman Resources is currently generating about 0.02 per unit of risk. If you would invest  37,464  in Microsoft on September 14, 2024 and sell it today you would earn a total of  7,263  from holding Microsoft or generate 19.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.63%
Values	Daily Returns

Microsoft  vs.  Bannerman Resources

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Bannerman Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bannerman Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Bannerman Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Bannerman Resources

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

The idea behind Microsoft and Bannerman Resources 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.