Correlation Between Microsoft and NaturalShrimp

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

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

Diversification Opportunities for Microsoft and NaturalShrimp

-0.44

Correlation Coefficient

Microsoft  NaturalShrimp

Very good diversification

The 3 months correlation between Microsoft and NaturalShrimp is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and NaturalShrimp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NaturalShrimp 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 NaturalShrimp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NaturalShrimp has no effect on the direction of Microsoft i.e., Microsoft and NaturalShrimp go up and down completely randomly.

Pair Corralation between Microsoft and NaturalShrimp

Given the investment horizon of 90 days Microsoft is expected to generate 11.06 times less return on investment than NaturalShrimp. But when comparing it to its historical volatility, Microsoft is 10.34 times less risky than NaturalShrimp. It trades about 0.06 of its potential returns per unit of risk. NaturalShrimp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.35  in NaturalShrimp on September 13, 2024 and sell it today you would earn a total of  0.01  from holding NaturalShrimp or generate 2.86% return on investment over 90 days.

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

Microsoft  vs.  NaturalShrimp

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.

NaturalShrimp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NaturalShrimp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent primary indicators, NaturalShrimp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and NaturalShrimp

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

The idea behind Microsoft and NaturalShrimp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.