Correlation Between Microsoft and Carabao Group

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

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

Diversification Opportunities for Microsoft and Carabao Group

-0.2

Correlation Coefficient

Microsoft  Carabao Group

Good diversification

The 3 months correlation between Microsoft and Carabao is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Carabao Group Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carabao Group Public 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 Carabao Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carabao Group Public has no effect on the direction of Microsoft i.e., Microsoft and Carabao Group go up and down completely randomly.

Pair Corralation between Microsoft and Carabao Group

Given the investment horizon of 90 days Microsoft is expected to generate 0.74 times more return on investment than Carabao Group. However, Microsoft is 1.35 times less risky than Carabao Group. It trades about 0.11 of its potential returns per unit of risk. Carabao Group Public is currently generating about 0.05 per unit of risk. If you would invest  41,830  in Microsoft on September 12, 2024 and sell it today you would earn a total of  2,503  from holding Microsoft or generate 5.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.12%
Values	Daily Returns

Microsoft  vs.  Carabao Group Public

Microsoft

Risk-Adjusted Performance

4 of 100

Modest

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.

Carabao Group Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carabao Group Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Carabao Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Carabao Group

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

The idea behind Microsoft and Carabao Group Public 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.