Correlation Between Microsoft and MAGNA INTL
Can any of the company-specific risk be diversified away by investing in both Microsoft and MAGNA 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 MAGNA INTL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and MAGNA INTL, you can compare the effects of market volatilities on Microsoft and MAGNA 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 MAGNA INTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and MAGNA INTL.
Diversification Opportunities for Microsoft and MAGNA INTL
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and MAGNA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and MAGNA INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAGNA 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 MAGNA INTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAGNA INTL has no effect on the direction of Microsoft i.e., Microsoft and MAGNA INTL go up and down completely randomly.
Pair Corralation between Microsoft and MAGNA INTL
Assuming the 90 days trading horizon Microsoft is expected to generate 10.22 times less return on investment than MAGNA INTL. But when comparing it to its historical volatility, Microsoft is 1.1 times less risky than MAGNA INTL. It trades about 0.02 of its potential returns per unit of risk. MAGNA INTL is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,919 in MAGNA INTL on August 30, 2024 and sell it today you would earn a total of 296.00 from holding MAGNA INTL or generate 7.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. MAGNA INTL
Performance |
| Timeline |
| Microsoft |
| MAGNA INTL |
Microsoft and MAGNA INTL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and MAGNA INTL
The main advantage of trading using opposite Microsoft and MAGNA INTL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, MAGNA 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 MAGNA INTL will offset losses from the drop in MAGNA INTL's long position.| Microsoft vs. Iridium Communications | Microsoft vs. Consolidated Communications Holdings | Microsoft vs. Charter Communications | Microsoft vs. SAFETY MEDICAL PROD |
| MAGNA INTL vs. Take Two Interactive Software | MAGNA INTL vs. Check Point Software | MAGNA INTL vs. PSI Software AG | MAGNA INTL vs. ASURE SOFTWARE |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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