Correlation Between Microsoft and WINDSTREAM HLDGS

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

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

Diversification Opportunities for Microsoft and WINDSTREAM HLDGS

0.29

Correlation Coefficient

Microsoft  WINDSTREAM HLDGS

Modest diversification

The 3 months correlation between Microsoft and WINDSTREAM is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WINDSTREAM HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WINDSTREAM HLDGS and Microsoft 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 Microsoft are associated (or correlated) with WINDSTREAM HLDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WINDSTREAM HLDGS has no effect on the direction of Microsoft i.e., Microsoft and WINDSTREAM HLDGS go up and down completely randomly.

Pair Corralation between Microsoft and WINDSTREAM HLDGS

Assuming the 90 days trading horizon Microsoft is expected to generate 160.83 times less return on investment than WINDSTREAM HLDGS. But when comparing it to its historical volatility, Microsoft is 74.67 times less risky than WINDSTREAM HLDGS. It trades about 0.06 of its potential returns per unit of risk. WINDSTREAM HLDGS is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.75  in WINDSTREAM HLDGS on September 18, 2024 and sell it today you would lose (0.25) from holding WINDSTREAM HLDGS or give up 33.33% of portfolio value over 90 days.

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

Microsoft  vs.  WINDSTREAM HLDGS

Microsoft

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WINDSTREAM HLDGS

Risk-Adjusted Performance

8 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WINDSTREAM HLDGS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WINDSTREAM HLDGS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and WINDSTREAM HLDGS

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

The idea behind Microsoft and WINDSTREAM HLDGS 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.