Correlation Between Microsoft and EDISON INTL
Can any of the company-specific risk be diversified away by investing in both Microsoft and EDISON INTL 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 EDISON INTL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and EDISON INTL, you can compare the effects of market volatilities on Microsoft and EDISON INTL 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 EDISON INTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and EDISON INTL.
Diversification Opportunities for Microsoft and EDISON INTL
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and EDISON is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and EDISON INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDISON INTL 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 EDISON INTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDISON INTL has no effect on the direction of Microsoft i.e., Microsoft and EDISON INTL go up and down completely randomly.
Pair Corralation between Microsoft and EDISON INTL
Assuming the 90 days trading horizon Microsoft is expected to generate 1.14 times more return on investment than EDISON INTL. However, Microsoft is 1.14 times more volatile than EDISON INTL. It trades about 0.09 of its potential returns per unit of risk. EDISON INTL is currently generating about 0.0 per unit of risk. If you would invest 23,226 in Microsoft on November 1, 2024 and sell it today you would earn a total of 16,654 from holding Microsoft or generate 71.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. EDISON INTL
Performance |
| Timeline |
| Microsoft |
| EDISON INTL |
Microsoft and EDISON INTL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and EDISON INTL
The main advantage of trading using opposite Microsoft and EDISON INTL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, EDISON INTL 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 EDISON INTL will offset losses from the drop in EDISON INTL's long position.| Microsoft vs. CARSALESCOM | Microsoft vs. SPORT LISBOA E | Microsoft vs. DICKS Sporting Goods | Microsoft vs. PARKEN Sport Entertainment |
| EDISON INTL vs. Gruppo Mutuionline SpA | EDISON INTL vs. China Datang | EDISON INTL vs. DATAGROUP SE | EDISON INTL vs. Ares Management Corp |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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