Correlation Between Summit Materials and Microsoft
Can any of the company-specific risk be diversified away by investing in both Summit Materials 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 Summit Materials and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Summit Materials and Microsoft, you can compare the effects of market volatilities on Summit Materials 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 Summit Materials with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Microsoft.
Diversification Opportunities for Summit Materials and Microsoft
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Summit and Microsoft is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and Microsoft go up and down completely randomly.
Pair Corralation between Summit Materials and Microsoft
Assuming the 90 days trading horizon Summit Materials is expected to generate 1.75 times more return on investment than Microsoft. However, Summit Materials is 1.75 times more volatile than Microsoft. It trades about 0.19 of its potential returns per unit of risk. Microsoft is currently generating about 0.07 per unit of risk. If you would invest 3,620 in Summit Materials on August 31, 2024 and sell it today you would earn a total of 1,200 from holding Summit Materials or generate 33.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Summit Materials vs. Microsoft
Performance |
| Timeline |
| Summit Materials |
| Microsoft |
Summit Materials and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Summit Materials and Microsoft
The main advantage of trading using opposite Summit Materials and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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.| Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc |
| Microsoft vs. Gruppo Mutuionline SpA | Microsoft vs. Air New Zealand | Microsoft vs. Ryanair Holdings plc | Microsoft vs. Salesforce |
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 CEOs Directory module to screen CEOs from public companies around the world.
Other Complementary Tools
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. |