Correlation Between Microsoft and INDOSAT B
Can any of the company-specific risk be diversified away by investing in both Microsoft and INDOSAT B 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 INDOSAT B into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and INDOSAT B , you can compare the effects of market volatilities on Microsoft and INDOSAT B 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 INDOSAT B. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and INDOSAT B.
Diversification Opportunities for Microsoft and INDOSAT B
Very good diversification
The 3 months correlation between Microsoft and INDOSAT is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and INDOSAT B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOSAT B 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 INDOSAT B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOSAT B has no effect on the direction of Microsoft i.e., Microsoft and INDOSAT B go up and down completely randomly.
Pair Corralation between Microsoft and INDOSAT B
Assuming the 90 days trading horizon Microsoft is expected to generate 1.08 times less return on investment than INDOSAT B. But when comparing it to its historical volatility, Microsoft is 2.47 times less risky than INDOSAT B. It trades about 0.1 of its potential returns per unit of risk. INDOSAT B is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 8.75 in INDOSAT B on September 16, 2024 and sell it today you would earn a total of 5.25 from holding INDOSAT B or generate 60.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. INDOSAT B
Performance |
| Timeline |
| Microsoft |
| INDOSAT B |
Microsoft and INDOSAT B Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and INDOSAT B
The main advantage of trading using opposite Microsoft and INDOSAT B positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, INDOSAT B 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 INDOSAT B will offset losses from the drop in INDOSAT B's long position.The idea behind Microsoft and INDOSAT B 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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