Correlation Between Microsoft and Universal Tracking

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

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

Diversification Opportunities for Microsoft and Universal Tracking

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Correlation Coefficient

Microsoft  Universal Tracking

Pay attention - limited upside

The 3 months correlation between Microsoft and Universal is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Universal Tracking Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Tracking 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 Universal Tracking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Tracking has no effect on the direction of Microsoft i.e., Microsoft and Universal Tracking go up and down completely randomly.

Pair Corralation between Microsoft and Universal Tracking

Given the investment horizon of 90 days Microsoft is expected to generate 0.2 times more return on investment than Universal Tracking. However, Microsoft is 5.1 times less risky than Universal Tracking. It trades about -0.03 of its potential returns per unit of risk. Universal Tracking Solutions is currently generating about -0.09 per unit of risk. If you would invest  45,500  in Microsoft on September 29, 2024 and sell it today you would lose (2,447) from holding Microsoft or give up 5.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Microsoft  vs.  Universal Tracking Solutions

Microsoft

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Universal Tracking

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Universal Tracking Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Universal Tracking is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Universal Tracking

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

The idea behind Microsoft and Universal Tracking Solutions 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.