Correlation Between HP and Microsoft
Can any of the company-specific risk be diversified away by investing in both HP 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 HP and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Microsoft, you can compare the effects of market volatilities on HP 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 HP with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Microsoft.
Diversification Opportunities for HP and Microsoft
Pay attention - limited upside
The 3 months correlation between HP and Microsoft is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and HP 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 HP 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 HP i.e., HP and Microsoft go up and down completely randomly.
Pair Corralation between HP and Microsoft
Considering the 90-day investment horizon HP Inc is expected to generate 0.99 times more return on investment than Microsoft. However, HP Inc is 1.01 times less risky than Microsoft. It trades about 0.14 of its potential returns per unit of risk. Microsoft is currently generating about -0.04 per unit of risk. If you would invest 3,742 in HP Inc on August 28, 2024 and sell it today you would earn a total of 188.00 from holding HP Inc or generate 5.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. Microsoft
Performance |
| Timeline |
| HP Inc |
| Microsoft |
HP and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Microsoft
The main advantage of trading using opposite HP and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc 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. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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