Correlation Between Microsoft and Sun Hung

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

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

Diversification Opportunities for Microsoft and Sun Hung

0.43

Correlation Coefficient

Microsoft  Sun Hung

Very weak diversification

The 3 months correlation between Microsoft and Sun is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai 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 Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of Microsoft i.e., Microsoft and Sun Hung go up and down completely randomly.

Pair Corralation between Microsoft and Sun Hung

Given the investment horizon of 90 days Microsoft is expected to generate 0.93 times more return on investment than Sun Hung. However, Microsoft is 1.07 times less risky than Sun Hung. It trades about 0.08 of its potential returns per unit of risk. Sun Hung Kai is currently generating about 0.04 per unit of risk. If you would invest  40,699  in Microsoft on February 28, 2024 and sell it today you would earn a total of  2,317  from holding Microsoft or generate 5.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Sun Hung Kai

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Sun Hung Kai

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, Sun Hung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Sun Hung

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

The idea behind Microsoft and Sun Hung Kai 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.