Correlation Between Microsoft and Pacific Smiles

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

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

Diversification Opportunities for Microsoft and Pacific Smiles

0.49

Correlation Coefficient

Microsoft  Pacific Smiles

Very weak diversification

The 3 months correlation between Microsoft and Pacific is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Pacific Smiles Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Smiles Group 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 Pacific Smiles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Smiles Group has no effect on the direction of Microsoft i.e., Microsoft and Pacific Smiles go up and down completely randomly.

Pair Corralation between Microsoft and Pacific Smiles

Given the investment horizon of 90 days Microsoft is expected to under-perform the Pacific Smiles. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.18 times less risky than Pacific Smiles. The stock trades about -0.03 of its potential returns per unit of risk. The Pacific Smiles Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Pacific Smiles Group on October 1, 2024 and sell it today you would earn a total of  23.00  from holding Pacific Smiles Group or generate 13.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Microsoft  vs.  Pacific Smiles Group

Microsoft

Risk-Adjusted Performance

2 of 100

Very 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.

Pacific Smiles Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Smiles Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Pacific Smiles may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Pacific Smiles

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

The idea behind Microsoft and Pacific Smiles Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.