Correlation Between Far East and Microsoft

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

Diversification Opportunities for Far East and Microsoft

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Far and Microsoft is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Far East Consortium and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Far East 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 Far East Consortium are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Far East i.e., Far East and Microsoft go up and down completely randomly.

Pair Corralation between Far East and Microsoft

If you would invest  39,816  in Microsoft on November 24, 2023 and sell it today you would earn a total of  402.00  from holding Microsoft or generate 1.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Far East Consortium  vs.  Microsoft

 Performance 
       Timeline  
Far East Consortium 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Far East Consortium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Far East is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Microsoft 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in March 2024.

Far East and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Far East and Microsoft

The main advantage of trading using opposite Far East and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far East position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.
The idea behind Far East Consortium and Microsoft 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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