Correlation Between Microsoft and SOS
Can any of the company-specific risk be diversified away by investing in both Microsoft and SOS 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 Microsoft and SOS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SOS LTD A, you can compare the effects of market volatilities on Microsoft and SOS 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 Microsoft with a short position of SOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SOS.
Diversification Opportunities for Microsoft and SOS
Excellent diversification
The 3 months correlation between Microsoft and SOS is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SOS LTD A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOS LTD A and Microsoft 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 Microsoft are associated (or correlated) with SOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOS LTD A has no effect on the direction of Microsoft i.e., Microsoft and SOS go up and down completely randomly.
Pair Corralation between Microsoft and SOS
Assuming the 90 days trading horizon Microsoft is expected to under-perform the SOS. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 5.43 times less risky than SOS. The stock trades about -0.04 of its potential returns per unit of risk. The SOS LTD A is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 660.00 in SOS LTD A on October 20, 2024 and sell it today you would earn a total of 40.00 from holding SOS LTD A or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 88.89% |
| Values | Daily Returns |
Microsoft vs. SOS LTD A
Performance |
| Timeline |
| Microsoft |
| SOS LTD A |
Microsoft and SOS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SOS
The main advantage of trading using opposite Microsoft and SOS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SOS 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 SOS will offset losses from the drop in SOS's long position.| Microsoft vs. The Hongkong and | Microsoft vs. Wyndham Hotels Resorts | Microsoft vs. COVIVIO HOTELS INH | Microsoft vs. Sunstone Hotel Investors |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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