Correlation Between Microsoft and Broadridge Financial

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

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

Diversification Opportunities for Microsoft and Broadridge Financial

0.36

Correlation Coefficient

Microsoft  Broadridge Financial

Weak diversification

The 3 months correlation between Microsoft and Broadridge is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Broadridge Financial Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadridge Financial 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 Broadridge Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadridge Financial has no effect on the direction of Microsoft i.e., Microsoft and Broadridge Financial go up and down completely randomly.

Pair Corralation between Microsoft and Broadridge Financial

Given the investment horizon of 90 days Microsoft is expected to generate 1.31 times more return on investment than Broadridge Financial. However, Microsoft is 1.31 times more volatile than Broadridge Financial Solutions. It trades about 0.0 of its potential returns per unit of risk. Broadridge Financial Solutions is currently generating about -0.07 per unit of risk. If you would invest  40,772  in Microsoft on January 29, 2024 and sell it today you would lose (140.00) from holding Microsoft or give up 0.34% of portfolio value over 90 days.

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

Microsoft  vs.  Broadridge Financial Solutions

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.

Broadridge Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadridge Financial Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Broadridge Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Microsoft and Broadridge Financial

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

The idea behind Microsoft and Broadridge Financial Solutions 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.

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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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.