Correlation Between Wayside Technology and Microsoft

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

By analyzing existing cross correlation between Wayside Technology Group and Microsoft, you can compare the effects of market volatilities on Wayside Technology and Microsoft 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 Wayside Technology with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayside Technology and Microsoft.

Diversification Opportunities for Wayside Technology and Microsoft

0.77

Correlation Coefficient

Wayside Technology  Microsoft

Poor diversification

The 3 months correlation between Wayside and Microsoft is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Wayside Technology Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Wayside Technology 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 Wayside Technology Group are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Wayside Technology i.e., Wayside Technology and Microsoft go up and down completely randomly.

Pair Corralation between Wayside Technology and Microsoft

Assuming the 90 days horizon Wayside Technology Group is expected to generate 2.33 times more return on investment than Microsoft. However, Wayside Technology is 2.33 times more volatile than Microsoft. It trades about 0.16 of its potential returns per unit of risk. Microsoft is currently generating about 0.09 per unit of risk. If you would invest  8,738  in Wayside Technology Group on September 23, 2024 and sell it today you would earn a total of  3,462  from holding Wayside Technology Group or generate 39.62% return on investment over 90 days.

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

Wayside Technology Group  vs.  Microsoft

Wayside Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wayside Technology Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Wayside Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wayside Technology and Microsoft

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

The idea behind Wayside Technology Group and Microsoft 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.