Correlation Between Microsoft and Federated

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

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

Diversification Opportunities for Microsoft and Federated

0.16

Correlation Coefficient

Microsoft  Federated

Average diversification

The 3 months correlation between Microsoft and Federated is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Federated U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated U S 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 Federated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated U S has no effect on the direction of Microsoft i.e., Microsoft and Federated go up and down completely randomly.

Pair Corralation between Microsoft and Federated

Given the investment horizon of 90 days Microsoft is expected to generate 1.77 times less return on investment than Federated. In addition to that, Microsoft is 5.58 times more volatile than Federated U S. It trades about 0.01 of its total potential returns per unit of risk. Federated U S is currently generating about 0.07 per unit of volatility. If you would invest  945.00  in Federated U S on September 14, 2024 and sell it today you would earn a total of  19.00  from holding Federated U S or generate 2.01% return on investment over 90 days.

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

Microsoft  vs.  Federated U S

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.

Federated U S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federated U S has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Federated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Federated

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

The idea behind Microsoft and Federated U S 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.