Correlation Between Seek and Microsoft

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

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

Diversification Opportunities for Seek and Microsoft

0.1

Correlation Coefficient

Seek  Microsoft

Average diversification

The 3 months correlation between Seek and Microsoft is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Seek Ltd ADR and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Seek 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 Seek Ltd ADR 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 Seek i.e., Seek and Microsoft go up and down completely randomly.

Pair Corralation between Seek and Microsoft

Assuming the 90 days horizon Seek is expected to generate 25.23 times less return on investment than Microsoft. In addition to that, Seek is 1.25 times more volatile than Microsoft. It trades about 0.0 of its total potential returns per unit of risk. Microsoft is currently generating about 0.06 per unit of volatility. If you would invest  26,772  in Microsoft on February 21, 2024 and sell it today you would earn a total of  15,762  from holding Microsoft or generate 58.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Seek Ltd ADR  vs.  Microsoft

Seek Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seek Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Microsoft

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 6 (%) 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 Seek and Microsoft

The main advantage of trading using opposite Seek and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seek 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 Seek Ltd ADR 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.