Correlation Between DiamondRock Hospitality and Microsoft
Can any of the company-specific risk be diversified away by investing in both DiamondRock Hospitality 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 DiamondRock Hospitality and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DiamondRock Hospitality and Microsoft, you can compare the effects of market volatilities on DiamondRock Hospitality 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 DiamondRock Hospitality with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of DiamondRock Hospitality and Microsoft.
Diversification Opportunities for DiamondRock Hospitality and Microsoft
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between DiamondRock and Microsoft is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding DiamondRock Hospitality and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and DiamondRock Hospitality 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 DiamondRock Hospitality 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 DiamondRock Hospitality i.e., DiamondRock Hospitality and Microsoft go up and down completely randomly.
Pair Corralation between DiamondRock Hospitality and Microsoft
Assuming the 90 days horizon DiamondRock Hospitality is expected to generate 1.5 times less return on investment than Microsoft. In addition to that, DiamondRock Hospitality is 2.36 times more volatile than Microsoft. It trades about 0.02 of its total potential returns per unit of risk. Microsoft is currently generating about 0.08 per unit of volatility. If you would invest 22,846 in Microsoft on August 28, 2024 and sell it today you would earn a total of 16,814 from holding Microsoft or generate 73.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
DiamondRock Hospitality vs. Microsoft
Performance |
| Timeline |
| DiamondRock Hospitality |
| Microsoft |
DiamondRock Hospitality and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DiamondRock Hospitality and Microsoft
The main advantage of trading using opposite DiamondRock Hospitality and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DiamondRock Hospitality 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.The idea behind DiamondRock Hospitality and Microsoft pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Microsoft vs. United Airlines Holdings | Microsoft vs. JAPAN AIRLINES | Microsoft vs. G III APPAREL GROUP | Microsoft vs. LIFENET INSURANCE CO |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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