Correlation Between Microsoft and Furukawa Electric

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

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

Diversification Opportunities for Microsoft and Furukawa Electric

0.62

Correlation Coefficient

Microsoft  Furukawa Electric

Poor diversification

The 3 months correlation between Microsoft and Furukawa is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Furukawa Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Furukawa Electric 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 Furukawa Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Furukawa Electric has no effect on the direction of Microsoft i.e., Microsoft and Furukawa Electric go up and down completely randomly.

Pair Corralation between Microsoft and Furukawa Electric

Given the investment horizon of 90 days Microsoft is expected to under-perform the Furukawa Electric. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.07 times less risky than Furukawa Electric. The stock trades about -0.15 of its potential returns per unit of risk. The Furukawa Electric Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,065  in Furukawa Electric Co on January 25, 2024 and sell it today you would earn a total of  17.00  from holding Furukawa Electric Co or generate 1.6% return on investment over 90 days.

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

Microsoft  vs.  Furukawa Electric Co

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.

Furukawa Electric

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Furukawa Electric Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Furukawa Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Furukawa Electric

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

The idea behind Microsoft and Furukawa Electric Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.