Correlation Between Microsoft and Syntec Optics

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

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

Diversification Opportunities for Microsoft and Syntec Optics

0.24

Correlation Coefficient

Microsoft  Syntec Optics

Modest diversification

The 3 months correlation between Microsoft and Syntec is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Syntec Optics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Syntec Optics Holdings 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 Syntec Optics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Syntec Optics Holdings has no effect on the direction of Microsoft i.e., Microsoft and Syntec Optics go up and down completely randomly.

Pair Corralation between Microsoft and Syntec Optics

Given the investment horizon of 90 days Microsoft is expected to generate 53.36 times less return on investment than Syntec Optics. But when comparing it to its historical volatility, Microsoft is 28.07 times less risky than Syntec Optics. It trades about 0.17 of its potential returns per unit of risk. Syntec Optics Holdings is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  87.00  in Syntec Optics Holdings on September 24, 2024 and sell it today you would earn a total of  263.00  from holding Syntec Optics Holdings or generate 302.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Syntec Optics Holdings

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Syntec Optics Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Syntec Optics Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Syntec Optics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Syntec Optics

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

The idea behind Microsoft and Syntec Optics Holdings 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.