Correlation Between Advanced Micro and Microsoft
Can any of the company-specific risk be diversified away by investing in both Advanced Micro 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 Advanced Micro and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advanced Micro Devices and Microsoft, you can compare the effects of market volatilities on Advanced Micro 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 Advanced Micro with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Micro and Microsoft.
Diversification Opportunities for Advanced Micro and Microsoft
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Advanced and Microsoft is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Micro Devices and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Advanced Micro 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 Advanced Micro Devices 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 Advanced Micro i.e., Advanced Micro and Microsoft go up and down completely randomly.
Pair Corralation between Advanced Micro and Microsoft
Assuming the 90 days horizon Advanced Micro is expected to generate 1.07 times less return on investment than Microsoft. In addition to that, Advanced Micro is 2.14 times more volatile than Microsoft. It trades about 0.03 of its total potential returns per unit of risk. Microsoft is currently generating about 0.07 per unit of volatility. If you would invest 29,681 in Microsoft on August 31, 2024 and sell it today you would earn a total of 10,319 from holding Microsoft or generate 34.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.74% |
| Values | Daily Returns |
Advanced Micro Devices vs. Microsoft
Performance |
| Timeline |
| Advanced Micro Devices |
| Microsoft |
Advanced Micro and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advanced Micro and Microsoft
The main advantage of trading using opposite Advanced Micro and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Micro 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.| Advanced Micro vs. NVIDIA | Advanced Micro vs. Taiwan Semiconductor Manufacturing | Advanced Micro vs. Intel |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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