Correlation Between Microsoft and Moderna

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

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

Diversification Opportunities for Microsoft and Moderna

-0.64

Correlation Coefficient

Microsoft  Moderna

Excellent diversification

The 3 months correlation between Microsoft and Moderna is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Moderna in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderna 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 Moderna. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderna has no effect on the direction of Microsoft i.e., Microsoft and Moderna go up and down completely randomly.

Pair Corralation between Microsoft and Moderna

Assuming the 90 days trading horizon Microsoft is expected to generate 0.42 times more return on investment than Moderna. However, Microsoft is 2.41 times less risky than Moderna. It trades about 0.04 of its potential returns per unit of risk. Moderna is currently generating about -0.19 per unit of risk. If you would invest  10,339  in Microsoft on September 24, 2024 and sell it today you would earn a total of  747.00  from holding Microsoft or generate 7.23% return on investment over 90 days.

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

Microsoft  vs.  Moderna

Microsoft

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Moderna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moderna has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microsoft and Moderna

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

The idea behind Microsoft and Moderna 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.