Correlation Between Microsoft and Mercedes-Benz Group

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Mercedes-Benz Group 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 Mercedes-Benz Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Mercedes-Benz Group AG, you can compare the effects of market volatilities on Microsoft and Mercedes-Benz Group 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 Mercedes-Benz Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Mercedes-Benz Group.

Diversification Opportunities for Microsoft and Mercedes-Benz Group

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Microsoft and Mercedes-Benz is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Mercedes-Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes-Benz 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 Mercedes-Benz Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes-Benz Group has no effect on the direction of Microsoft i.e., Microsoft and Mercedes-Benz Group go up and down completely randomly.

Pair Corralation between Microsoft and Mercedes-Benz Group

Given the investment horizon of 90 days Microsoft is expected to under-perform the Mercedes-Benz Group. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.03 times less risky than Mercedes-Benz Group. The stock trades about -0.01 of its potential returns per unit of risk. The Mercedes-Benz Group AG is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,447  in Mercedes-Benz Group AG on November 4, 2022 and sell it today you would earn a total of  407.00  from holding Mercedes-Benz Group AG or generate 28.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy78.86%
ValuesDaily Returns

Microsoft  vs.  Mercedes-Benz Group AG

 Performance (%) 
       Timeline  
Microsoft 
Microsoft Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft Price Channel

Mercedes-Benz Group 
Mercedes-Benz Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes-Benz Group AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish basic indicators, Mercedes-Benz Group showed solid returns over the last few months and may actually be approaching a breakup point.

Mercedes-Benz Price Channel

Microsoft and Mercedes-Benz Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Mercedes-Benz Group

The main advantage of trading using opposite Microsoft and Mercedes-Benz Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Mercedes-Benz Group 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 Mercedes-Benz Group will offset losses from the drop in Mercedes-Benz Group's long position.
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The idea behind Microsoft and Mercedes-Benz Group AG 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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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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