Correlation Between Microsoft and Cullen Small

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

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

Diversification Opportunities for Microsoft and Cullen Small

0.22

Correlation Coefficient

Microsoft  Cullen Small

Modest diversification

The 3 months correlation between Microsoft and Cullen is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cullen Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cullen Small Cap 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 Cullen Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cullen Small Cap has no effect on the direction of Microsoft i.e., Microsoft and Cullen Small go up and down completely randomly.

Pair Corralation between Microsoft and Cullen Small

Given the investment horizon of 90 days Microsoft is expected to generate 1.0 times more return on investment than Cullen Small. However, Microsoft is 1.0 times more volatile than Cullen Small Cap. It trades about 0.27 of its potential returns per unit of risk. Cullen Small Cap is currently generating about -0.23 per unit of risk. If you would invest  41,718  in Microsoft on September 12, 2024 and sell it today you would earn a total of  2,615  from holding Microsoft or generate 6.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Cullen Small Cap

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.

Cullen Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cullen Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Cullen Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Cullen Small

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

The idea behind Microsoft and Cullen Small Cap 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.