Correlation Between Microsoft and Razor Labs

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

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

Diversification Opportunities for Microsoft and Razor Labs

0.03

Correlation Coefficient

Microsoft  Razor Labs

Significant diversification

The 3 months correlation between Microsoft and Razor is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Razor Labs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Razor Labs 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 Razor Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Razor Labs has no effect on the direction of Microsoft i.e., Microsoft and Razor Labs go up and down completely randomly.

Pair Corralation between Microsoft and Razor Labs

Given the investment horizon of 90 days Microsoft is expected to generate 3.22 times less return on investment than Razor Labs. But when comparing it to its historical volatility, Microsoft is 5.35 times less risky than Razor Labs. It trades about 0.19 of its potential returns per unit of risk. Razor Labs is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  52,020  in Razor Labs on September 25, 2024 and sell it today you would earn a total of  5,560  from holding Razor Labs or generate 10.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Microsoft  vs.  Razor Labs

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

Razor Labs

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Razor Labs are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Razor Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Razor Labs

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

The idea behind Microsoft and Razor Labs 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.