Correlation Between Microsoft and Destination

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

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

Diversification Opportunities for Microsoft and Destination

-0.59

Correlation Coefficient

Microsoft  Destination

Excellent diversification

The 3 months correlation between Microsoft and Destination is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Destination XL Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Destination XL Group 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 Destination. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Destination XL Group has no effect on the direction of Microsoft i.e., Microsoft and Destination go up and down completely randomly.

Pair Corralation between Microsoft and Destination

Given the investment horizon of 90 days Microsoft is expected to under-perform the Destination. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.74 times less risky than Destination. The stock trades about -0.13 of its potential returns per unit of risk. The Destination XL Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  332.00  in Destination XL Group on January 25, 2024 and sell it today you would earn a total of  0.00  from holding Destination XL Group or generate 0.0% 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.  Destination XL Group

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Microsoft and Destination

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

The idea behind Microsoft and Destination XL 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.