Correlation Between Synopsys and Microsoft

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

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

Diversification Opportunities for Synopsys and Microsoft

0.74

Correlation Coefficient

Synopsys  Microsoft

Poor diversification

The 3 months correlation between Synopsys and Microsoft is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Synopsys and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Synopsys 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 Synopsys are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Synopsys i.e., Synopsys and Microsoft go up and down completely randomly.

Pair Corralation between Synopsys and Microsoft

Given the investment horizon of 90 days Synopsys is expected to under-perform the Microsoft. In addition to that, Synopsys is 1.46 times more volatile than Microsoft. It trades about -0.38 of its total potential returns per unit of risk. Microsoft is currently generating about -0.11 per unit of volatility. If you would invest  42,141  in Microsoft on January 19, 2024 and sell it today you would lose (957.00) from holding Microsoft or give up 2.27% of portfolio value over 90 days.

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

Synopsys  vs.  Microsoft

Synopsys

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Synopsys are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Synopsys is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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.

Pair Trading with Synopsys and Microsoft

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

The idea behind Synopsys and Microsoft 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.