Correlation Between Meta Platforms and Microsoft
Can any of the company-specific risk be diversified away by investing in both Meta Platforms 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 Meta Platforms and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Microsoft, you can compare the effects of market volatilities on Meta Platforms 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 Meta Platforms with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Microsoft.
Diversification Opportunities for Meta Platforms and Microsoft
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Meta and Microsoft is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and Microsoft go up and down completely randomly.
Pair Corralation between Meta Platforms and Microsoft
Assuming the 90 days trading horizon Meta Platforms is expected to generate 1.42 times more return on investment than Microsoft. However, Meta Platforms is 1.42 times more volatile than Microsoft. It trades about 0.11 of its potential returns per unit of risk. Microsoft is currently generating about 0.04 per unit of risk. If you would invest 43,168 in Meta Platforms on August 28, 2024 and sell it today you would earn a total of 11,592 from holding Meta Platforms or generate 26.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Meta Platforms vs. Microsoft
Performance |
| Timeline |
| Meta Platforms |
| Microsoft |
Meta Platforms and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Meta Platforms and Microsoft
The main advantage of trading using opposite Meta Platforms and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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.| Meta Platforms vs. ARISTOCRAT LEISURE | Meta Platforms vs. PLAYSTUDIOS A DL 0001 | Meta Platforms vs. FLOW TRADERS LTD | Meta Platforms vs. FAST RETAIL ADR |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
Other Complementary Tools
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |