Correlation Between Microsoft and Safran SA

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Safran SA 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 Safran SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Safran SA, you can compare the effects of market volatilities on Microsoft and Safran SA 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 Safran SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Safran SA.

Diversification Opportunities for Microsoft and Safran SA

0.31
  Correlation Coefficient

Weak diversification

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

Pair Corralation between Microsoft and Safran SA

Given the investment horizon of 90 days Microsoft is expected to generate 3.31 times less return on investment than Safran SA. In addition to that, Microsoft is 1.19 times more volatile than Safran SA. It trades about 0.02 of its total potential returns per unit of risk. Safran SA is currently generating about 0.09 per unit of volatility. If you would invest  21,160  in Safran SA on August 29, 2024 and sell it today you would earn a total of  560.00  from holding Safran SA or generate 2.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Safran SA

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 4 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.
Safran SA 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Safran SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking indicators, Safran SA may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Microsoft and Safran SA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Safran SA

The main advantage of trading using opposite Microsoft and Safran SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Safran SA 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 Safran SA will offset losses from the drop in Safran SA's long position.
The idea behind Microsoft and Safran SA 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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