Correlation Between Microsoft Corp and P A

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

Diversification Opportunities for Microsoft Corp and P A

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and P A is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and P A M in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on P A M 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 P A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of P A M has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and P A go up and down completely randomly.

Pair Corralation between Microsoft Corp and P A

Given the investment horizon of 90 days Microsoft Corp is expected to generate 97.23 times less return on investment than P A. But when comparing it to its historical volatility, Microsoft Corp is 2.09 times less risky than P A. It trades about 0.0 of its potential returns per unit of risk. P A M is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,710  in P A M on May 10, 2022 and sell it today you would earn a total of  1,889  from holding P A M or generate 110.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  P A M

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft Corp 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

P A M 
P A Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in P A M are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly sluggish basic indicators, P A reported solid returns over the last few months and may actually be approaching a breakup point.

P A Price Channel

Microsoft Corp and P A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and P A

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

Microsoft Corp

Pair trading matchups for Microsoft Corp

The idea behind Microsoft Corp and P A M 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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