Correlation Between Microsoft and Sunny Optical

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Sunny Optical 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 Sunny Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sunny Optical Technology, you can compare the effects of market volatilities on Microsoft and Sunny Optical 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 Sunny Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sunny Optical.

Diversification Opportunities for Microsoft and Sunny Optical

MicrosoftSunnyDiversified AwayMicrosoftSunnyDiversified Away100%
0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Microsoft and Sunny is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sunny Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Optical Technology 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 Sunny Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Optical Technology has no effect on the direction of Microsoft i.e., Microsoft and Sunny Optical go up and down completely randomly.

Pair Corralation between Microsoft and Sunny Optical

Given the investment horizon of 90 days Microsoft is expected to generate 11.76 times less return on investment than Sunny Optical. But when comparing it to its historical volatility, Microsoft is 3.62 times less risky than Sunny Optical. It trades about 0.05 of its potential returns per unit of risk. Sunny Optical Technology is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,561  in Sunny Optical Technology on September 16, 2024 and sell it today you would earn a total of  3,108  from holding Sunny Optical Technology or generate 55.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Sunny Optical Technology

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 01020304050
JavaScript chart by amCharts 3.21.15MSFT SOTGY
       Timeline  
Microsoft 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
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 current stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec410420430440450
Sunny Optical Technology 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Sunny Optical Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Sunny Optical showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec60657075808590

Microsoft and Sunny Optical Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.89-2.92-1.94-0.960.01681.012.023.034.04 0.050.100.150.200.25
JavaScript chart by amCharts 3.21.15MSFT SOTGY
       Returns  

Pair Trading with Microsoft and Sunny Optical

The main advantage of trading using opposite Microsoft and Sunny Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sunny Optical 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 Sunny Optical will offset losses from the drop in Sunny Optical's long position.
The idea behind Microsoft and Sunny Optical Technology 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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