Correlation Between Microsoft and Rotshtein

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

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

Diversification Opportunities for Microsoft and Rotshtein

0.53

Correlation Coefficient

Microsoft  Rotshtein

Very weak diversification

The 3 months correlation between Microsoft and Rotshtein is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rotshtein in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rotshtein 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 Rotshtein. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rotshtein has no effect on the direction of Microsoft i.e., Microsoft and Rotshtein go up and down completely randomly.

Pair Corralation between Microsoft and Rotshtein

Given the investment horizon of 90 days Microsoft is expected to generate 1.08 times less return on investment than Rotshtein. But when comparing it to its historical volatility, Microsoft is 1.83 times less risky than Rotshtein. It trades about 0.11 of its potential returns per unit of risk. Rotshtein is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  357,094  in Rotshtein on September 27, 2024 and sell it today you would earn a total of  225,906  from holding Rotshtein or generate 63.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	77.46%
Values	Daily Returns

Microsoft  vs.  Rotshtein

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Rotshtein

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rotshtein are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rotshtein sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Rotshtein

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

The idea behind Microsoft and Rotshtein 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.