Correlation Between Microsoft and GLATFELTER
Can any of the company-specific risk be diversified away by investing in both Microsoft and GLATFELTER 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 GLATFELTER into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and GLATFELTER, you can compare the effects of market volatilities on Microsoft and GLATFELTER 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 GLATFELTER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GLATFELTER.
Diversification Opportunities for Microsoft and GLATFELTER
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and GLATFELTER is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GLATFELTER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GLATFELTER 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 GLATFELTER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GLATFELTER has no effect on the direction of Microsoft i.e., Microsoft and GLATFELTER go up and down completely randomly.
Pair Corralation between Microsoft and GLATFELTER
Assuming the 90 days trading horizon Microsoft is expected to generate 1.3 times less return on investment than GLATFELTER. But when comparing it to its historical volatility, Microsoft is 3.06 times less risky than GLATFELTER. It trades about 0.42 of its potential returns per unit of risk. GLATFELTER is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,680 in GLATFELTER on September 16, 2024 and sell it today you would earn a total of 178.00 from holding GLATFELTER or generate 10.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. GLATFELTER
Performance |
| Timeline |
| Microsoft |
| GLATFELTER |
Microsoft and GLATFELTER Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and GLATFELTER
The main advantage of trading using opposite Microsoft and GLATFELTER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GLATFELTER 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 GLATFELTER will offset losses from the drop in GLATFELTER's long position.The idea behind Microsoft and GLATFELTER 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.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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