Correlation Between Microsoft and Porto Seguro

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

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

Diversification Opportunities for Microsoft and Porto Seguro

0.56

Correlation Coefficient

Microsoft  Porto Seguro

Very weak diversification

The 3 months correlation between Microsoft and Porto is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Porto Seguro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porto Seguro SA 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 Porto Seguro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porto Seguro SA has no effect on the direction of Microsoft i.e., Microsoft and Porto Seguro go up and down completely randomly.

Pair Corralation between Microsoft and Porto Seguro

Assuming the 90 days trading horizon Microsoft is expected to generate 1.29 times more return on investment than Porto Seguro. However, Microsoft is 1.29 times more volatile than Porto Seguro SA. It trades about 0.17 of its potential returns per unit of risk. Porto Seguro SA is currently generating about 0.03 per unit of risk. If you would invest  9,659  in Microsoft on September 27, 2024 and sell it today you would earn a total of  1,512  from holding Microsoft or generate 15.65% return on investment over 90 days.

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

Microsoft  vs.  Porto Seguro SA

Microsoft

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Porto Seguro SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Porto Seguro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Microsoft and Porto Seguro

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

The idea behind Microsoft and Porto Seguro SA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.