Correlation Between Microsoft and Rupert Resources

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

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

Diversification Opportunities for Microsoft and Rupert Resources

-0.36

Correlation Coefficient

Microsoft  Rupert Resources

Very good diversification

The 3 months correlation between Microsoft and Rupert is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rupert Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rupert Resources 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 Rupert Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rupert Resources has no effect on the direction of Microsoft i.e., Microsoft and Rupert Resources go up and down completely randomly.

Pair Corralation between Microsoft and Rupert Resources

Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than Rupert Resources. However, Microsoft is 1.57 times less risky than Rupert Resources. It trades about 0.05 of its potential returns per unit of risk. Rupert Resources is currently generating about 0.01 per unit of risk. If you would invest  43,048  in Microsoft on September 14, 2024 and sell it today you would earn a total of  1,679  from holding Microsoft or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Rupert Resources

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.

Rupert Resources

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Rupert Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rupert Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and Rupert Resources

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

The idea behind Microsoft and Rupert Resources 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..