Correlation Between Microsoft and Virgin

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

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

Diversification Opportunities for Microsoft and Virgin

0.21

Correlation Coefficient

Microsoft  Virgin

Modest diversification

The 3 months correlation between Microsoft and Virgin is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Virgin Media Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Media Communi 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 Virgin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Media Communi has no effect on the direction of Microsoft i.e., Microsoft and Virgin go up and down completely randomly.

Pair Corralation between Microsoft and Virgin

Given the investment horizon of 90 days Microsoft is expected to generate 2.36 times more return on investment than Virgin. However, Microsoft is 2.36 times more volatile than Virgin Media Communications. It trades about 0.05 of its potential returns per unit of risk. Virgin Media Communications is currently generating about 0.02 per unit of risk. If you would invest  40,862  in Microsoft on August 31, 2024 and sell it today you would earn a total of  1,437  from holding Microsoft or generate 3.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.06%
Values	Daily Returns

Microsoft  vs.  Virgin Media Communications

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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.

Virgin Media Communi

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Media Communications are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Virgin 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 Virgin

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

The idea behind Microsoft and Virgin Media Communications 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.