Correlation Between Microsoft and Target

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

Diversification Opportunities for Microsoft and Target

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and Target is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Microsoft i.e., Microsoft and Target go up and down completely randomly.

Pair Corralation between Microsoft and Target

Given the investment horizon of 90 days Microsoft is expected to generate 0.71 times more return on investment than Target. However, Microsoft is 1.42 times less risky than Target. It trades about 0.14 of its potential returns per unit of risk. Target is currently generating about 0.03 per unit of risk. If you would invest  25,478  in Microsoft on December 29, 2023 and sell it today you would earn a total of  16,665  from holding Microsoft or generate 65.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft  vs.  Target

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Target 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Microsoft and Target Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Target

The main advantage of trading using opposite Microsoft and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.
The idea behind Microsoft and Target 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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