Correlation Between Lumen Technologies and Microsoft
Can any of the company-specific risk be diversified away by investing in both Lumen Technologies 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 Lumen Technologies and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumen Technologies and Microsoft, you can compare the effects of market volatilities on Lumen Technologies 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 Lumen Technologies with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumen Technologies and Microsoft.
Diversification Opportunities for Lumen Technologies and Microsoft
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Lumen and Microsoft is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Lumen Technologies and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Lumen Technologies 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 Lumen Technologies 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 Lumen Technologies i.e., Lumen Technologies and Microsoft go up and down completely randomly.
Pair Corralation between Lumen Technologies and Microsoft
Given the investment horizon of 90 days Lumen Technologies is expected to generate 5.2 times more return on investment than Microsoft. However, Lumen Technologies is 5.2 times more volatile than Microsoft. It trades about 0.14 of its potential returns per unit of risk. Microsoft is currently generating about 0.19 per unit of risk. If you would invest 639.00 in Lumen Technologies on September 1, 2024 and sell it today you would earn a total of 95.00 from holding Lumen Technologies or generate 14.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumen Technologies vs. Microsoft
Performance |
| Timeline |
| Lumen Technologies |
| Microsoft |
Lumen Technologies and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumen Technologies and Microsoft
The main advantage of trading using opposite Lumen Technologies and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumen Technologies 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.| Lumen Technologies vs. Verizon Communications | Lumen Technologies vs. T Mobile | Lumen Technologies vs. Comcast Corp | Lumen Technologies vs. ATT Inc |
| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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