Correlation Between Microsoft and Macys

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

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

Diversification Opportunities for Microsoft and Macys

0.61

Correlation Coefficient

Microsoft  Macys

Poor diversification

The 3 months correlation between Microsoft and Macys is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Macys Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macys 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 Macys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macys Inc has no effect on the direction of Microsoft i.e., Microsoft and Macys go up and down completely randomly.

Pair Corralation between Microsoft and Macys

Given the investment horizon of 90 days Microsoft is expected to generate 11.6 times less return on investment than Macys. But when comparing it to its historical volatility, Microsoft is 1.69 times less risky than Macys. It trades about 0.02 of its potential returns per unit of risk. Macys Inc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,166  in Macys Inc on September 24, 2024 and sell it today you would earn a total of  1,939  from holding Macys Inc or generate 23.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.38%
Values	Daily Returns

Microsoft  vs.  Macys Inc

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.

Macys Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Macys sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Macys

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

The idea behind Microsoft and Macys 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.