Correlation Between Microsoft and Quality Hospitality

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

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

Diversification Opportunities for Microsoft and Quality Hospitality

0.31

Correlation Coefficient

Microsoft  Quality Hospitality

Weak diversification

The 3 months correlation between Microsoft and Quality is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Quality Hospitality Leasehold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quality Hospitality 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 Quality Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quality Hospitality has no effect on the direction of Microsoft i.e., Microsoft and Quality Hospitality go up and down completely randomly.

Pair Corralation between Microsoft and Quality Hospitality

Given the investment horizon of 90 days Microsoft is expected to generate 1.31 times less return on investment than Quality Hospitality. But when comparing it to its historical volatility, Microsoft is 1.4 times less risky than Quality Hospitality. It trades about 0.06 of its potential returns per unit of risk. Quality Hospitality Leasehold is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  340.00  in Quality Hospitality Leasehold on September 14, 2024 and sell it today you would earn a total of  18.00  from holding Quality Hospitality Leasehold or generate 5.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Microsoft  vs.  Quality Hospitality Leasehold

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.

Quality Hospitality

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quality Hospitality Leasehold are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Quality Hospitality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and Quality Hospitality

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

The idea behind Microsoft and Quality Hospitality Leasehold 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.