Correlation Between Microsoft and Cogent Communications

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

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

Diversification Opportunities for Microsoft and Cogent Communications

-0.42

Correlation Coefficient

Microsoft  Cogent Communications

Very good diversification

The 3 months correlation between Microsoft and Cogent is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cogent Communications Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications 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 Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Microsoft i.e., Microsoft and Cogent Communications go up and down completely randomly.

Pair Corralation between Microsoft and Cogent Communications

Given the investment horizon of 90 days Microsoft is expected to under-perform the Cogent Communications. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.06 times less risky than Cogent Communications. The stock trades about -0.29 of its potential returns per unit of risk. The Cogent Communications Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,417  in Cogent Communications Group on February 1, 2024 and sell it today you would earn a total of  1.00  from holding Cogent Communications Group or generate 0.02% return on investment over 90 days.

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

Microsoft  vs.  Cogent Communications Group

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.

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Microsoft and Cogent Communications

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

The idea behind Microsoft and Cogent Communications Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.