Correlation Between Microsoft and Sentinel Balanced

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

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

Diversification Opportunities for Microsoft and Sentinel Balanced

0.39

Correlation Coefficient

Microsoft  Sentinel Balanced

Weak diversification

The 3 months correlation between Microsoft and Sentinel is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sentinel Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Balanced 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 Sentinel Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Balanced has no effect on the direction of Microsoft i.e., Microsoft and Sentinel Balanced go up and down completely randomly.

Pair Corralation between Microsoft and Sentinel Balanced

Given the investment horizon of 90 days Microsoft is expected to generate 2.65 times more return on investment than Sentinel Balanced. However, Microsoft is 2.65 times more volatile than Sentinel Balanced Fund. It trades about 0.06 of its potential returns per unit of risk. Sentinel Balanced Fund is currently generating about 0.0 per unit of risk. If you would invest  43,440  in Microsoft on September 20, 2024 and sell it today you would earn a total of  2,006  from holding Microsoft or generate 4.62% return on investment over 90 days.

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

Microsoft  vs.  Sentinel Balanced Fund

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) 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.

Sentinel Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sentinel Balanced Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Sentinel Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Sentinel Balanced

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

The idea behind Microsoft and Sentinel Balanced Fund 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.