Correlation Between Microsoft and Federated Kaufmann

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

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

Diversification Opportunities for Microsoft and Federated Kaufmann

0.27

Correlation Coefficient

Microsoft  Federated Kaufmann

Modest diversification

The 3 months correlation between Microsoft and Federated is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Federated Kaufmann Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Kaufmann Small 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 Kaufmann. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Kaufmann Small has no effect on the direction of Microsoft i.e., Microsoft and Federated Kaufmann go up and down completely randomly.

Pair Corralation between Microsoft and Federated Kaufmann

Given the investment horizon of 90 days Microsoft is expected to generate 1.94 times less return on investment than Federated Kaufmann. But when comparing it to its historical volatility, Microsoft is 1.08 times less risky than Federated Kaufmann. It trades about 0.17 of its potential returns per unit of risk. Federated Kaufmann Small is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  5,019  in Federated Kaufmann Small on September 3, 2024 and sell it today you would earn a total of  390.00  from holding Federated Kaufmann Small or generate 7.77% return on investment over 90 days.

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

Microsoft  vs.  Federated Kaufmann Small

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 Kaufmann Small

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Kaufmann Small are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Federated Kaufmann may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Federated Kaufmann

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

The idea behind Microsoft and Federated Kaufmann Small 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.