Correlation Between Microsoft and Benchmark Electronics

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

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

Diversification Opportunities for Microsoft and Benchmark Electronics

-0.34

Correlation Coefficient

Microsoft  Benchmark Electronics

Very good diversification

The 1 month correlation between Microsoft and Benchmark is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of Microsoft i.e., Microsoft and Benchmark Electronics go up and down completely randomly.

Pair Corralation between Microsoft and Benchmark Electronics

Given the investment horizon of 90 days Microsoft is expected to under-perform the Benchmark Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.65 times less risky than Benchmark Electronics. The stock trades about -0.11 of its potential returns per unit of risk. The Benchmark Electronics is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,906  in Benchmark Electronics on January 19, 2024 and sell it today you would earn a total of  98.00  from holding Benchmark Electronics or generate 3.37% return on investment over 90 days.

Time Period	1 Month [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Benchmark Electronics

Microsoft

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Benchmark Electronics

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Microsoft and Benchmark Electronics

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

The idea behind Microsoft and Benchmark Electronics 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.