Correlation Between Microsoft and Carefree

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

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

Diversification Opportunities for Microsoft and Carefree

0.0

Correlation Coefficient

Microsoft  Carefree

Pay attention - limited upside

The 3 months correlation between Microsoft and Carefree is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Carefree Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carefree Group 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 Carefree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carefree Group has no effect on the direction of Microsoft i.e., Microsoft and Carefree go up and down completely randomly.

Pair Corralation between Microsoft and Carefree

Given the investment horizon of 90 days Microsoft is expected to generate 11.15 times less return on investment than Carefree. But when comparing it to its historical volatility, Microsoft is 16.5 times less risky than Carefree. It trades about 0.1 of its potential returns per unit of risk. Carefree Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Carefree Group on September 25, 2024 and sell it today you would lose (0.50) from holding Carefree Group or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Carefree Group

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Carefree Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carefree Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Carefree is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Carefree

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

The idea behind Microsoft and Carefree Group 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.