Correlation Between Microsoft Corp and Fortinet

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

Diversification Opportunities for Microsoft Corp and Fortinet

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Microsoft and Fortinet is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet and Microsoft Corp 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 Corp are associated (or correlated) with Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Fortinet go up and down completely randomly.

Pair Corralation between Microsoft Corp and Fortinet

Given the investment horizon of 90 days Microsoft Corp is expected to generate 2.26 times less return on investment than Fortinet. But when comparing it to its historical volatility, Microsoft Corp is 1.61 times less risky than Fortinet. It trades about 0.05 of its potential returns per unit of risk. Fortinet is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,661  in Fortinet on May 15, 2022 and sell it today you would earn a total of  2,768  from holding Fortinet or generate 104.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Fortinet

 Performance (%) 
       Timeline  
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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Price Channel

Fortinet 
Fortinet Performance
0 of 100
Over the last 90 days Fortinet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fortinet is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Fortinet Price Channel

Microsoft Corp and Fortinet Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Fortinet

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

Microsoft Corp

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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.
The idea behind Microsoft Corp and Fortinet 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.
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 Shere Portfolio module to track or share privately all of your investments from the convenience of any device.

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