Correlation Between Twitter and Microsoft

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

Diversification Opportunities for Twitter and Microsoft

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Twitter and Microsoft is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Twitter and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Twitter 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 Twitter 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 Twitter i.e., Twitter and Microsoft go up and down completely randomly.

Pair Corralation between Twitter and Microsoft

If you would invest  40,182  in Microsoft on November 25, 2023 and sell it today you would earn a total of  983.00  from holding Microsoft or generate 2.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy4.76%
ValuesDaily Returns

Twitter  vs.  Microsoft

 Performance 
       Timeline  
Twitter 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Twitter has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Twitter is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.
Microsoft 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in March 2024.

Twitter and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Twitter and Microsoft

The main advantage of trading using opposite Twitter and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twitter 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 Twitter 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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