Correlation Between Microsoft and Diplomat Holdings

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

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

Diversification Opportunities for Microsoft and Diplomat Holdings

0.0

Correlation Coefficient

Microsoft  Diplomat Holdings

Pay attention - limited upside

The 3 months correlation between Microsoft and Diplomat is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Diplomat Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diplomat Holdings 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 Diplomat Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diplomat Holdings has no effect on the direction of Microsoft i.e., Microsoft and Diplomat Holdings go up and down completely randomly.

Pair Corralation between Microsoft and Diplomat Holdings

Given the investment horizon of 90 days Microsoft is expected to generate 0.69 times more return on investment than Diplomat Holdings. However, Microsoft is 1.45 times less risky than Diplomat Holdings. It trades about 0.08 of its potential returns per unit of risk. Diplomat Holdings is currently generating about 0.02 per unit of risk. If you would invest  25,277  in Microsoft on September 3, 2024 and sell it today you would earn a total of  17,069  from holding Microsoft or generate 67.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	77.98%
Values	Daily Returns

Microsoft  vs.  Diplomat Holdings

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Diplomat Holdings

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Diplomat Holdings are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Diplomat Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Diplomat Holdings

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

The idea behind Microsoft and Diplomat Holdings 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.