Correlation Between Microsoft and Carmat SA

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

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

Diversification Opportunities for Microsoft and Carmat SA

-0.34

Correlation Coefficient

Microsoft  Carmat SA

Very good diversification

The 3 months correlation between Microsoft and Carmat is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Carmat SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carmat SA 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 Carmat SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carmat SA has no effect on the direction of Microsoft i.e., Microsoft and Carmat SA go up and down completely randomly.

Pair Corralation between Microsoft and Carmat SA

Given the investment horizon of 90 days Microsoft is expected to generate 0.24 times more return on investment than Carmat SA. However, Microsoft is 4.15 times less risky than Carmat SA. It trades about 0.02 of its potential returns per unit of risk. Carmat SA is currently generating about -0.12 per unit of risk. If you would invest  43,264  in Microsoft on September 23, 2024 and sell it today you would earn a total of  396.00  from holding Microsoft or generate 0.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Microsoft  vs.  Carmat SA

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.

Carmat SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carmat SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Carmat SA

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

The idea behind Microsoft and Carmat SA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.