Correlation Between Microsoft and Seach Medical

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

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

Diversification Opportunities for Microsoft and Seach Medical

0.47

Correlation Coefficient

Microsoft  Seach Medical

Very weak diversification

The 3 months correlation between Microsoft and Seach is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Seach Medical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seach Medical Group 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 Seach Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seach Medical Group has no effect on the direction of Microsoft i.e., Microsoft and Seach Medical go up and down completely randomly.

Pair Corralation between Microsoft and Seach Medical

Given the investment horizon of 90 days Microsoft is expected to generate 2.13 times less return on investment than Seach Medical. But when comparing it to its historical volatility, Microsoft is 1.46 times less risky than Seach Medical. It trades about 0.19 of its potential returns per unit of risk. Seach Medical Group is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  28,800  in Seach Medical Group on September 25, 2024 and sell it today you would earn a total of  2,630  from holding Seach Medical Group or generate 9.13% return on investment over 90 days.

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

Microsoft  vs.  Seach Medical Group

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.

Seach Medical Group

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Seach Medical Group are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Seach Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Seach Medical

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

The idea behind Microsoft and Seach Medical Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.