Correlation Between James Hardie and Microsoft

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

Diversification Opportunities for James Hardie and Microsoft

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between James and Microsoft is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding James Hardie Industries and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and James Hardie 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 James Hardie Industries 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 James Hardie i.e., James Hardie and Microsoft go up and down completely randomly.

Pair Corralation between James Hardie and Microsoft

Considering the 90-day investment horizon James Hardie Industries is expected to under-perform the Microsoft. In addition to that, James Hardie is 1.76 times more volatile than Microsoft. It trades about -0.11 of its total potential returns per unit of risk. Microsoft is currently generating about 0.15 per unit of volatility. If you would invest  22,723  in Microsoft on September 8, 2022 and sell it today you would earn a total of  1,834  from holding Microsoft or generate 8.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

James Hardie Industries  vs.  Microsoft

 Performance (%) 
       Timeline  
James Hardie Industries 
James Performance
0 of 100
Over the last 90 days James Hardie Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of sluggish performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

James 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

James Hardie and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with James Hardie and Microsoft

The main advantage of trading using opposite James Hardie and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if James Hardie 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 James Hardie Industries 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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