Correlation Between First American and Microsoft

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

Diversification Opportunities for First American and Microsoft

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between First and Microsoft is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and First American 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 First American Funds 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 First American i.e., First American and Microsoft go up and down completely randomly.

Pair Corralation between First American and Microsoft

Assuming the 90 days horizon First American Funds is expected to generate 24.15 times more return on investment than Microsoft. However, First American is 24.15 times more volatile than Microsoft. It trades about 0.09 of its potential returns per unit of risk. Microsoft is currently generating about 0.14 per unit of risk. If you would invest  336.00  in First American Funds on September 8, 2022 and sell it today you would lose (236.00)  from holding First American Funds or give up 70.24% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

First American Funds  vs.  Microsoft

 Performance (%) 
       Timeline  
First American Funds 
First Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in First American Funds are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly inconsistent basic indicators, First American showed solid returns over the last few months and may actually be approaching a breakup point.

First Price Channel

Microsoft 
Microsoft Performance
0 of 100
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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

First American and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First American and Microsoft

The main advantage of trading using opposite First American and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American 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.
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The idea behind First American Funds 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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