Correlation Between Microsoft and China Medical
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Medical 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 China Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Medical System, you can compare the effects of market volatilities on Microsoft and China Medical 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 China Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Medical.
Diversification Opportunities for Microsoft and China Medical
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Microsoft and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Medical System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medical System 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 China Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medical System has no effect on the direction of Microsoft i.e., Microsoft and China Medical go up and down completely randomly.
Pair Corralation between Microsoft and China Medical
Given the investment horizon of 90 days Microsoft is expected to generate 3.65 times less return on investment than China Medical. But when comparing it to its historical volatility, Microsoft is 8.98 times less risky than China Medical. It trades about 0.1 of its potential returns per unit of risk. China Medical System is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 138.00 in China Medical System on September 3, 2024 and sell it today you would lose (45.00) from holding China Medical System or give up 32.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 46.11% |
| Values | Daily Returns |
Microsoft vs. China Medical System
Performance |
| Timeline |
| Microsoft |
| China Medical System |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Microsoft and China Medical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Medical
The main advantage of trading using opposite Microsoft and China Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Medical 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 China Medical will offset losses from the drop in China Medical's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China Medical vs. Eisai Co | China Medical vs. Dr Reddys Laboratories | China Medical vs. ANI Pharmaceuticals | China Medical vs. Lantheus Holdings |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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