Correlation Between Microsoft and RBC Life

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

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

Diversification Opportunities for Microsoft and RBC Life

0.65

Correlation Coefficient

Microsoft  RBC Life

Poor diversification

The 3 months correlation between Microsoft and RBC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and RBC Life Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Life Science 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 RBC Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Life Science has no effect on the direction of Microsoft i.e., Microsoft and RBC Life go up and down completely randomly.

Pair Corralation between Microsoft and RBC Life

Given the investment horizon of 90 days Microsoft is expected to generate 4.9 times less return on investment than RBC Life. In addition to that, Microsoft is 1.38 times more volatile than RBC Life Science. It trades about 0.03 of its total potential returns per unit of risk. RBC Life Science is currently generating about 0.19 per unit of volatility. If you would invest  6,771  in RBC Life Science on September 25, 2024 and sell it today you would earn a total of  813.00  from holding RBC Life Science or generate 12.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  RBC Life Science

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

RBC Life Science

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Life Science are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak technical and fundamental indicators, RBC Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microsoft and RBC Life

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

The idea behind Microsoft and RBC Life Science 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.