Correlation Between Microsoft and High Yield

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

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

Diversification Opportunities for Microsoft and High Yield

0.57

Correlation Coefficient

Microsoft  High Yield

Very weak diversification

The 3 months correlation between Microsoft and High is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Microsoft i.e., Microsoft and High Yield go up and down completely randomly.

Pair Corralation between Microsoft and High Yield

Given the investment horizon of 90 days Microsoft is expected to generate 1.68 times less return on investment than High Yield. In addition to that, Microsoft is 8.66 times more volatile than High Yield Fund. It trades about 0.02 of its total potential returns per unit of risk. High Yield Fund is currently generating about 0.22 per unit of volatility. If you would invest  719.00  in High Yield Fund on September 19, 2024 and sell it today you would earn a total of  30.00  from holding High Yield Fund or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Microsoft  vs.  High Yield Fund

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

High Yield Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, High Yield 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 High Yield

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

The idea behind Microsoft and High Yield 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.