Correlation Between Microsoft and Arena Group

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

Diversification Opportunities for Microsoft and Arena Group

-0.05
  Correlation Coefficient

Good diversification

The 3 months correlation between Microsoft and Arena is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Arena Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arena Group Holdings 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 Arena Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arena Group Holdings has no effect on the direction of Microsoft i.e., Microsoft and Arena Group go up and down completely randomly.

Pair Corralation between Microsoft and Arena Group

Given the investment horizon of 90 days Microsoft is expected to generate 0.49 times more return on investment than Arena Group. However, Microsoft is 2.03 times less risky than Arena Group. It trades about 0.04 of its potential returns per unit of risk. Arena Group Holdings is currently generating about -0.09 per unit of risk. If you would invest  24,230  in Microsoft on September 11, 2022 and sell it today you would earn a total of  312.00  from holding Microsoft or generate 1.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Arena Group Holdings

 Performance (%) 
       Timeline  
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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Arena Group Holdings 
Arena Performance
0 of 100
Over the last 90 days Arena Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Arena Group is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Arena Price Channel

Microsoft and Arena Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Arena Group

The main advantage of trading using opposite Microsoft and Arena Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Arena Group 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 Arena Group will offset losses from the drop in Arena Group's long position.
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The idea behind Microsoft and Arena Group Holdings 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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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