Correlation Between Microsoft and ALPS

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

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

Diversification Opportunities for Microsoft and ALPS

0.44

Correlation Coefficient

Microsoft  ALPS

Very weak diversification

The 3 months correlation between Microsoft and ALPS is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of Microsoft i.e., Microsoft and ALPS go up and down completely randomly.

Pair Corralation between Microsoft and ALPS

Given the investment horizon of 90 days Microsoft is expected to generate 1.26 times more return on investment than ALPS. However, Microsoft is 1.26 times more volatile than ALPS. It trades about 0.1 of its potential returns per unit of risk. ALPS is currently generating about 0.06 per unit of risk. If you would invest  23,313  in Microsoft on September 14, 2024 and sell it today you would earn a total of  21,414  from holding Microsoft or generate 91.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.53%
Values	Daily Returns

Microsoft  vs.  ALPS

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.

ALPS

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and ALPS

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

The idea behind Microsoft and ALPS 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.