Correlation Between Microsoft and Europacific Growth

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

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

Diversification Opportunities for Microsoft and Europacific Growth

0.76

Correlation Coefficient

Microsoft  Europacific Growth

Poor diversification

The 3 months correlation between Microsoft and Europacific is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Europacific Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europacific Growth 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 Europacific Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europacific Growth has no effect on the direction of Microsoft i.e., Microsoft and Europacific Growth go up and down completely randomly.

Pair Corralation between Microsoft and Europacific Growth

Given the investment horizon of 90 days Microsoft is expected to under-perform the Europacific Growth. In addition to that, Microsoft is 1.48 times more volatile than Europacific Growth Fund. It trades about -0.14 of its total potential returns per unit of risk. Europacific Growth Fund is currently generating about -0.15 per unit of volatility. If you would invest  5,562  in Europacific Growth Fund on January 26, 2024 and sell it today you would lose (121.00) from holding Europacific Growth Fund or give up 2.18% of portfolio value over 90 days.

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

Microsoft  vs.  Europacific Growth Fund

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.

Europacific Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Europacific Growth Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Europacific Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Europacific Growth

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

The idea behind Microsoft and Europacific Growth Fund 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.