Correlation Between Microsoft Corp and Vecima Networks

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

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

Diversification Opportunities for Microsoft Corp and Vecima Networks

0.09

Correlation Coefficient

Microsoft Corp  Vecima Networks

Significant diversification

The 3 months correlation between Microsoft and Vecima is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Vecima Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vecima Networks and Microsoft Corp 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 Corp CDR are associated (or correlated) with Vecima Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vecima Networks has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Vecima Networks go up and down completely randomly.

Pair Corralation between Microsoft Corp and Vecima Networks

Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the Vecima Networks. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft Corp CDR is 1.11 times less risky than Vecima Networks. The stock trades about -0.05 of its potential returns per unit of risk. The Vecima Networks is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,063  in Vecima Networks on June 21, 2024 and sell it today you would earn a total of  157.00  from holding Vecima Networks or generate 7.61% return on investment over 90 days.

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

Microsoft Corp CDR  vs.  Vecima Networks

Microsoft Corp CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft Corp CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vecima Networks

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vecima Networks are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Vecima Networks may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Microsoft Corp and Vecima Networks

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

The idea behind Microsoft Corp CDR and Vecima Networks 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.