Correlation Between Alfi and Microsoft Corp

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Can any of the company-specific risk be diversified away by investing in both Alfi and Microsoft Corp 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 Alfi and Microsoft Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alfi Inc and Microsoft Corp, you can compare the effects of market volatilities on Alfi and Microsoft Corp 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 Alfi with a short position of Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfi and Microsoft Corp.

Diversification Opportunities for Alfi and Microsoft Corp

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alfi and Microsoft is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Alfi Inc and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Alfi 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 Alfi Inc are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Alfi i.e., Alfi and Microsoft Corp go up and down completely randomly.

Pair Corralation between Alfi and Microsoft Corp

Considering the 90-day investment horizon Alfi Inc is expected to generate 2.07 times more return on investment than Microsoft Corp. However, Alfi is 2.07 times more volatile than Microsoft Corp. It trades about 0.09 of its potential returns per unit of risk. Microsoft Corp is currently generating about 0.1 per unit of risk. If you would invest  123.00  in Alfi Inc on May 15, 2022 and sell it today you would earn a total of  26.00  from holding Alfi Inc or generate 21.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Alfi Inc  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Alfi Inc 
Alfi Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alfi Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Alfi exhibited solid returns over the last few months and may actually be approaching a breakup point.

Alfi Price Channel

Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

Alfi and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alfi and Microsoft Corp

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

Alfi Inc

Pair trading matchups for Alfi

Semiconductor Bear vs. Alfi
Universal Health vs. Alfi
Cto Realty vs. Alfi
Rolls Royce vs. Alfi
Olema Pharmaceuticals vs. Alfi
Horizon Therapeutics vs. Alfi
Nike vs. Alfi
Prog Hldgs vs. Alfi
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Alfi as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Alfi's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Alfi's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Alfi Inc.
The idea behind Alfi Inc and Microsoft Corp 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.

Microsoft Corp

Pair trading matchups for Microsoft Corp

Nike vs. Microsoft Corp
Universal Health vs. Microsoft Corp
Essential Properties vs. Microsoft Corp
Ark Innovation vs. Microsoft Corp
Cto Realty vs. Microsoft Corp
Horizon Therapeutics vs. Microsoft Corp
Rolls Royce vs. Microsoft Corp
Olema Pharmaceuticals vs. Microsoft Corp
Prog Hldgs vs. Microsoft Corp
Semiconductor Bear vs. Microsoft Corp
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Microsoft Corp as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Microsoft Corp's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Microsoft Corp's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Microsoft Corp.
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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