Correlation Between Microsoft and SOS

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

By analyzing existing cross correlation between Microsoft and SOS LTD A, you can compare the effects of market volatilities on Microsoft and SOS 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 SOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SOS.

Diversification Opportunities for Microsoft and SOS

-0.31

Correlation Coefficient

Microsoft  SOS

Very good diversification

The 3 months correlation between Microsoft and SOS is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SOS LTD A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOS LTD A 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 SOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOS LTD A has no effect on the direction of Microsoft i.e., Microsoft and SOS go up and down completely randomly.

Pair Corralation between Microsoft and SOS

Given the investment horizon of 90 days Microsoft is expected to generate 7.45 times less return on investment than SOS. But when comparing it to its historical volatility, Microsoft is 17.22 times less risky than SOS. It trades about 0.11 of its potential returns per unit of risk. SOS LTD A is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  710.00  in SOS LTD A on September 27, 2024 and sell it today you would lose (55.00) from holding SOS LTD A or give up 7.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Microsoft  vs.  SOS LTD A

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

SOS LTD A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SOS LTD A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SOS is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Microsoft and SOS

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

The idea behind Microsoft and SOS LTD A 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.