Correlation Between Microsoft and Five9

Can any of the company-specific risk be diversified away by investing in both Microsoft and Five9 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 Five9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Five9 Inc, you can compare the effects of market volatilities on Microsoft and Five9 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 Five9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Five9.

Diversification Opportunities for Microsoft and Five9

0.01

Correlation Coefficient

Microsoft  Five9

Significant diversification

The 12 months correlation between Microsoft and Five9 is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Five9 Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five9 Inc 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 Five9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five9 Inc has no effect on the direction of Microsoft i.e., Microsoft and Five9 go up and down completely randomly.

Pair Corralation between Microsoft and Five9

Given the investment horizon of 90 days Microsoft is expected to generate 0.47 times more return on investment than Five9. However, Microsoft is 2.11 times less risky than Five9. It trades about 0.13 of its potential returns per unit of risk. Five9 Inc is currently generating about 0.0 per unit of risk. If you would invest  24,739  in Microsoft on January 24, 2024 and sell it today you would earn a total of  15,357  from holding Microsoft or generate 62.08% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Five9 Inc

Microsoft

Risk-Adjusted Performance

7 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Five9 Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Five9 Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Five9 is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Five9

The main advantage of trading using opposite Microsoft and Five9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Five9 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 Five9 will offset losses from the drop in Five9's long position.

The idea behind Microsoft and Five9 Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.