Correlation Between Microsoft and Charter Hall

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

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

Diversification Opportunities for Microsoft and Charter Hall

-0.29

Correlation Coefficient

Microsoft  Charter Hall

Very good diversification

The 3 months correlation between Microsoft and Charter is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Charter Hall Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Hall Long 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 Charter Hall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Hall Long has no effect on the direction of Microsoft i.e., Microsoft and Charter Hall go up and down completely randomly.

Pair Corralation between Microsoft and Charter Hall

Given the investment horizon of 90 days Microsoft is expected to generate 11.18 times less return on investment than Charter Hall. But when comparing it to its historical volatility, Microsoft is 1.0 times less risky than Charter Hall. It trades about 0.01 of its potential returns per unit of risk. Charter Hall Long is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  331.00  in Charter Hall Long on September 14, 2024 and sell it today you would earn a total of  44.00  from holding Charter Hall Long or generate 13.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Microsoft  vs.  Charter Hall Long

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.

Charter Hall Long

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Microsoft and Charter Hall Long 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.