Correlation Between Microsoft and Kasten

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

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

Diversification Opportunities for Microsoft and Kasten

-0.19

Correlation Coefficient

Microsoft  Kasten

Good diversification

The 3 months correlation between Microsoft and Kasten is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kasten Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kasten Inc 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 Kasten. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kasten Inc has no effect on the direction of Microsoft i.e., Microsoft and Kasten go up and down completely randomly.

Pair Corralation between Microsoft and Kasten

Given the investment horizon of 90 days Microsoft is expected to generate 8.0 times less return on investment than Kasten. But when comparing it to its historical volatility, Microsoft is 12.45 times less risky than Kasten. It trades about 0.09 of its potential returns per unit of risk. Kasten Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.49  in Kasten Inc on September 27, 2024 and sell it today you would lose (1.89) from holding Kasten Inc or give up 75.9% of portfolio value over 90 days.

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

Microsoft  vs.  Kasten Inc

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Kasten Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kasten Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Kasten unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Kasten

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

The idea behind Microsoft and Kasten Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.