Correlation Between Microsoft and Omnicom

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

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

Diversification Opportunities for Microsoft and Omnicom

0.6

Correlation Coefficient

Microsoft  Omnicom

Poor diversification

The 3 months correlation between Microsoft and Omnicom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Omnicom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omnicom 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 Omnicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omnicom Group has no effect on the direction of Microsoft i.e., Microsoft and Omnicom go up and down completely randomly.

Pair Corralation between Microsoft and Omnicom

Given the investment horizon of 90 days Microsoft is expected to under-perform the Omnicom. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.27 times less risky than Omnicom. The stock trades about -0.24 of its potential returns per unit of risk. The Omnicom Group is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  9,426  in Omnicom Group on January 20, 2024 and sell it today you would lose (276.00) from holding Omnicom Group or give up 2.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  Omnicom Group

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) 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.

Omnicom Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Omnicom Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Omnicom is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Microsoft and Omnicom

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

The idea behind Microsoft and Omnicom 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.