Correlation Between Microsoft and Linde Plc

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

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

Diversification Opportunities for Microsoft and Linde Plc

-0.43

Correlation Coefficient

Microsoft  Linde Plc

Very good diversification

The 3 months correlation between Microsoft and Linde is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Linde plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linde plc 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 Linde Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linde plc has no effect on the direction of Microsoft i.e., Microsoft and Linde Plc go up and down completely randomly.

Pair Corralation between Microsoft and Linde Plc

Given the investment horizon of 90 days Microsoft is expected to generate 1.26 times more return on investment than Linde Plc. However, Microsoft is 1.26 times more volatile than Linde plc. It trades about 0.02 of its potential returns per unit of risk. Linde plc is currently generating about -0.08 per unit of risk. If you would invest  43,264  in Microsoft on September 23, 2024 and sell it today you would earn a total of  396.00  from holding Microsoft or generate 0.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Microsoft  vs.  Linde plc

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) 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.

Linde plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linde plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Linde Plc is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Linde Plc

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

The idea behind Microsoft and Linde plc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.