Correlation Between Apple and Microsoft
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and Microsoft, you can compare the effects of market volatilities on Apple 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 Apple with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Microsoft.
Diversification Opportunities for Apple and Microsoft
Poor diversification
The 3 months correlation between Apple and Microsoft is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Apple 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 Apple Inc 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 Apple i.e., Apple and Microsoft go up and down completely randomly.
Pair Corralation between Apple and Microsoft
Assuming the 90 days trading horizon Apple is expected to generate 1.14 times less return on investment than Microsoft. But when comparing it to its historical volatility, Apple Inc is 1.03 times less risky than Microsoft. It trades about 0.08 of its potential returns per unit of risk. Microsoft is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 23,469 in Microsoft on August 27, 2024 and sell it today you would earn a total of 16,286 from holding Microsoft or generate 69.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. Microsoft
Performance |
| Timeline |
| Apple Inc |
| Microsoft |
Apple and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and Microsoft
The main advantage of trading using opposite Apple and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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.| Apple vs. Summit Materials | Apple vs. Lion One Metals | Apple vs. SANOK RUBBER ZY | Apple vs. Goodyear Tire Rubber |
| Microsoft vs. AGF Management Limited | Microsoft vs. CHINA EDUCATION GROUP | Microsoft vs. DeVry Education Group | Microsoft vs. Brockhaus Capital Management |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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