Correlation Between United Parcel and Microsoft

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

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

Diversification Opportunities for United Parcel and Microsoft

0.09

Correlation Coefficient

United Parcel  Microsoft

Significant diversification

The 3 months correlation between United and Microsoft is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding United Parcel Service and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and United Parcel 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 United Parcel Service 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 United Parcel i.e., United Parcel and Microsoft go up and down completely randomly.

Pair Corralation between United Parcel and Microsoft

Considering the 90-day investment horizon United Parcel Service is expected to under-perform the Microsoft. In addition to that, United Parcel is 1.28 times more volatile than Microsoft. It trades about -0.05 of its total potential returns per unit of risk. Microsoft is currently generating about 0.05 per unit of volatility. If you would invest  41,475  in Microsoft on March 1, 2024 and sell it today you would earn a total of  1,557  from holding Microsoft or generate 3.75% return on investment over 90 days.

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

United Parcel Service  vs.  Microsoft

United Parcel Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Parcel Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, United Parcel is not utilizing all of its potentials. The latest 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 United Parcel and Microsoft

The main advantage of trading using opposite United Parcel and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Parcel 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 United Parcel Service 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.