Correlation Between Microsoft and Bram Indus

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

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

Diversification Opportunities for Microsoft and Bram Indus

0.81

Correlation Coefficient

Microsoft  Bram Indus

Very poor diversification

The 3 months correlation between Microsoft and Bram is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bram Indus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bram Indus 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 Bram Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bram Indus has no effect on the direction of Microsoft i.e., Microsoft and Bram Indus go up and down completely randomly.

Pair Corralation between Microsoft and Bram Indus

Given the investment horizon of 90 days Microsoft is expected to generate 9.52 times less return on investment than Bram Indus. But when comparing it to its historical volatility, Microsoft is 2.89 times less risky than Bram Indus. It trades about 0.03 of its potential returns per unit of risk. Bram Indus is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  15,380  in Bram Indus on September 25, 2024 and sell it today you would earn a total of  2,170  from holding Bram Indus or generate 14.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	70.31%
Values	Daily Returns

Microsoft  vs.  Bram Indus

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.

Bram Indus

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bram Indus are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bram Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Bram Indus

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

The idea behind Microsoft and Bram Indus 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.