Correlation Between American Public and Microsoft
Can any of the company-specific risk be diversified away by investing in both American Public 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 American Public and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Public Education and Microsoft, you can compare the effects of market volatilities on American Public 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 American Public with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and Microsoft.
Diversification Opportunities for American Public and Microsoft
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Microsoft is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and American Public 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 American Public Education 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 American Public i.e., American Public and Microsoft go up and down completely randomly.
Pair Corralation between American Public and Microsoft
Assuming the 90 days horizon American Public is expected to generate 2.15 times less return on investment than Microsoft. In addition to that, American Public is 1.58 times more volatile than Microsoft. It trades about 0.06 of its total potential returns per unit of risk. Microsoft is currently generating about 0.19 per unit of volatility. If you would invest 39,845 in Microsoft on September 25, 2024 and sell it today you would earn a total of 2,120 from holding Microsoft or generate 5.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Public Education vs. Microsoft
Performance |
| Timeline |
| American Public Education |
| Microsoft |
American Public and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Public and Microsoft
The main advantage of trading using opposite American Public and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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.| American Public vs. IDP EDUCATION LTD | American Public vs. TAL Education Group | American Public vs. Grand Canyon Education | American Public vs. Graham Holdings Co |
| Microsoft vs. American Public Education | Microsoft vs. G8 EDUCATION | Microsoft vs. TAL Education Group | Microsoft vs. ETFS Coffee ETC |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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