Correlation Between Microsoft and GOODYEAR T
Can any of the company-specific risk be diversified away by investing in both Microsoft and GOODYEAR T 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 GOODYEAR T into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and GOODYEAR T RUBBER, you can compare the effects of market volatilities on Microsoft and GOODYEAR T 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 GOODYEAR T. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GOODYEAR T.
Diversification Opportunities for Microsoft and GOODYEAR T
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and GOODYEAR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GOODYEAR T RUBBER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOODYEAR T RUBBER 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 GOODYEAR T. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOODYEAR T RUBBER has no effect on the direction of Microsoft i.e., Microsoft and GOODYEAR T go up and down completely randomly.
Pair Corralation between Microsoft and GOODYEAR T
Assuming the 90 days trading horizon Microsoft is expected to generate 0.37 times more return on investment than GOODYEAR T. However, Microsoft is 2.7 times less risky than GOODYEAR T. It trades about 0.22 of its potential returns per unit of risk. GOODYEAR T RUBBER is currently generating about -0.38 per unit of risk. If you would invest 40,045 in Microsoft on September 28, 2024 and sell it today you would earn a total of 1,785 from holding Microsoft or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. GOODYEAR T RUBBER
Performance |
| Timeline |
| Microsoft |
| GOODYEAR T RUBBER |
Microsoft and GOODYEAR T Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and GOODYEAR T
The main advantage of trading using opposite Microsoft and GOODYEAR T positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GOODYEAR T 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 GOODYEAR T will offset losses from the drop in GOODYEAR T's long position.| Microsoft vs. JLT MOBILE PUTER | Microsoft vs. Consolidated Communications Holdings | Microsoft vs. Waste Management | Microsoft vs. WillScot Mobile Mini |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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