Correlation Between Micro Focus and Microsoft Corp

By analyzing existing cross correlation between Micro Focus Intl and Microsoft Corp, you can compare the effects of market volatilities on Micro Focus and Microsoft Corp 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 Micro Focus with a short position of Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Micro Focus and Microsoft Corp.

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

Diversification Opportunities for Micro Focus and Microsoft Corp

-0.24
  Correlation Coefficient
Micro Focus Intl
Microsoft Corp

Very good diversification

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

Pair Corralation between Micro Focus and Microsoft Corp

Given the investment horizon of 90 days Micro Focus Intl is expected to under-perform the Microsoft Corp. In addition to that, Micro Focus is 2.34 times more volatile than Microsoft Corp. It trades about -0.02 of its total potential returns per unit of risk. Microsoft Corp is currently generating about 0.13 per unit of volatility. If you would invest  21,502  in Microsoft Corp on September 4, 2021 and sell it today you would earn a total of  10,502  from holding Microsoft Corp or generate 48.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Micro Focus Intl  vs.  Microsoft Corp

 Performance (%) 
      Timeline 
Micro Focus Intl 
Micro Performance
0 of 100
Over the last 90 days Micro Focus Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Micro Price Channel

Microsoft Corp 
Microsoft Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp 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 Corp may actually be approaching a critical reversion point that can send shares even higher in January 2022.

Microsoft Price Channel

Micro Focus and Microsoft Corp Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Micro Focus and Microsoft Corp

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

Micro Focus Intl

Pair trading matchups for Micro Focus

The idea behind Micro Focus Intl and Microsoft Corp 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.

Microsoft Corp

Pair trading matchups for Microsoft Corp

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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