Correlation Between VeriSign and Microsoft

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

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

Diversification Opportunities for VeriSign and Microsoft

-0.34

Correlation Coefficient

VeriSign  Microsoft

Very good diversification

The 3 months correlation between VeriSign and Microsoft is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding VeriSign and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and VeriSign 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 VeriSign are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of VeriSign i.e., VeriSign and Microsoft go up and down completely randomly.

Pair Corralation between VeriSign and Microsoft

Assuming the 90 days horizon VeriSign is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, VeriSign is 1.21 times less risky than Microsoft. The stock trades about -0.37 of its potential returns per unit of risk. The Microsoft is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  39,210  in Microsoft on January 31, 2024 and sell it today you would lose (1,765) from holding Microsoft or give up 4.5% of portfolio value over 90 days.

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

VeriSign  vs.  Microsoft

VeriSign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VeriSign has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Microsoft is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VeriSign and Microsoft

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

The idea behind VeriSign and Microsoft 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 Commodity Directory module to find actively traded commodities issued by global exchanges.