Correlation Between Microsoft and Dairy Farm

Can any of the company-specific risk be diversified away by investing in both Microsoft and Dairy Farm 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 Dairy Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Dairy Farm International, you can compare the effects of market volatilities on Microsoft and Dairy Farm 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 Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Dairy Farm.

Diversification Opportunities for Microsoft and Dairy Farm

0.24

Correlation Coefficient

Microsoft  Dairy Farm

Modest diversification

The 3 months correlation between Microsoft and Dairy is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International 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 Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Microsoft i.e., Microsoft and Dairy Farm go up and down completely randomly.

Pair Corralation between Microsoft and Dairy Farm

Given the investment horizon of 90 days Microsoft is expected to generate 0.48 times more return on investment than Dairy Farm. However, Microsoft is 2.09 times less risky than Dairy Farm. It trades about 0.1 of its potential returns per unit of risk. Dairy Farm International is currently generating about -0.07 per unit of risk. If you would invest  35,515  in Microsoft on February 4, 2024 and sell it today you would earn a total of  5,151  from holding Microsoft or generate 14.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Microsoft  vs.  Dairy Farm International

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

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.

Dairy Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dairy Farm International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Dairy Farm is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Dairy Farm

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

The idea behind Microsoft and Dairy Farm International 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 the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.