Correlation Between Microsoft and Payden Core

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

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

Diversification Opportunities for Microsoft and Payden Core

0.26

Correlation Coefficient

Microsoft  Payden Core

Modest diversification

The 3 months correlation between Microsoft and Payden is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Payden Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Core Bond 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 Payden Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Core Bond has no effect on the direction of Microsoft i.e., Microsoft and Payden Core go up and down completely randomly.

Pair Corralation between Microsoft and Payden Core

Given the investment horizon of 90 days Microsoft is expected to generate 3.27 times more return on investment than Payden Core. However, Microsoft is 3.27 times more volatile than Payden Core Bond. It trades about 0.09 of its potential returns per unit of risk. Payden Core Bond is currently generating about 0.08 per unit of risk. If you would invest  31,884  in Microsoft on September 12, 2024 and sell it today you would earn a total of  12,992  from holding Microsoft or generate 40.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.7%
Values	Daily Returns

Microsoft  vs.  Payden Core Bond

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Payden Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Payden Core Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Payden Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Payden Core

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

The idea behind Microsoft and Payden Core Bond 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.