Can any of the company-specific risk be diversified away by investing in both BANORT 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 BANORT and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BANORT 8 38 and Microsoft, you can compare the effects of market volatilities on BANORT 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 BANORT with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANORT and Microsoft.
Diversification Opportunities for BANORT and Microsoft
The 3 months correlation between BANORT and Microsoft is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding BANORT 8 3/8 PERP and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and BANORT 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 BANORT 8 38 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 BANORT i.e., BANORT and Microsoft go up and down completely randomly.
Assuming the 90 days trading horizon BANORT is expected to generate 1.46 times less return on investment than Microsoft. In addition to that, BANORT is 1.09 times more volatile than Microsoft. It trades about 0.25 of its total potential returns per unit of risk. Microsoft is currently generating about 0.39 per unit of volatility. If you would invest 34,537 in Microsoft on September 2, 2023 and sell it today you would earn a total of 3,354 from holding Microsoft or generate 9.71% return on investment over 90 days.
Over the last 90 days BANORT 8 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BANORT is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.
The main advantage of trading using opposite BANORT and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BANORT 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 BANORT 8 38 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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