Correlation Between Microsoft and Paranapanema

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

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

Diversification Opportunities for Microsoft and Paranapanema

-0.67

Correlation Coefficient

Microsoft  Paranapanema

Excellent diversification

The 3 months correlation between Microsoft and Paranapanema is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Paranapanema SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paranapanema 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 Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paranapanema SA has no effect on the direction of Microsoft i.e., Microsoft and Paranapanema go up and down completely randomly.

Pair Corralation between Microsoft and Paranapanema

Assuming the 90 days trading horizon Microsoft is expected to generate 0.39 times more return on investment than Paranapanema. However, Microsoft is 2.59 times less risky than Paranapanema. It trades about 0.38 of its potential returns per unit of risk. Paranapanema SA is currently generating about -0.09 per unit of risk. If you would invest  8,866  in Microsoft on April 23, 2025 and sell it today you would earn a total of  3,009  from holding Microsoft or generate 33.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Paranapanema SA

Microsoft

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Microsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Paranapanema SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Paranapanema SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in August 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and Paranapanema

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

The idea behind Microsoft and Paranapanema 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.