Correlation Between Microsoft and Juva Life

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

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

Diversification Opportunities for Microsoft and Juva Life

0.16

Correlation Coefficient

Microsoft  Juva Life

Average diversification

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

Pair Corralation between Microsoft and Juva Life

Given the investment horizon of 90 days Microsoft is expected to generate 393.18 times less return on investment than Juva Life. But when comparing it to its historical volatility, Microsoft is 144.64 times less risky than Juva Life. It trades about 0.06 of its potential returns per unit of risk. Juva Life is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.15  in Juva Life on September 12, 2024 and sell it today you would lose (0.15) from holding Juva Life or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Microsoft  vs.  Juva Life

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.

Juva Life

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Juva Life are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Juva Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Juva Life

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

The idea behind Microsoft and Juva Life 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.