Correlation Between Microsoft and CF Acquisition

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

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

Diversification Opportunities for Microsoft and CF Acquisition

0.04

Correlation Coefficient

Microsoft  CF Acquisition

Significant diversification

The 3 months correlation between Microsoft and CFIVU is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CF Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Acquisition Corp 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 CF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Acquisition Corp has no effect on the direction of Microsoft i.e., Microsoft and CF Acquisition go up and down completely randomly.

Pair Corralation between Microsoft and CF Acquisition

If you would invest  41,696  in Microsoft on September 20, 2024 and sell it today you would earn a total of  3,750  from holding Microsoft or generate 8.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Microsoft  vs.  CF Acquisition Corp

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

CF Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CF Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CF Acquisition 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 CF Acquisition

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

The idea behind Microsoft and CF Acquisition Corp 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.