Correlation Between Microsoft and Performance Food
Can any of the company-specific risk be diversified away by investing in both Microsoft and Performance Food 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 Performance Food into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Performance Food Group, you can compare the effects of market volatilities on Microsoft and Performance Food 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 Performance Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Performance Food.
Diversification Opportunities for Microsoft and Performance Food
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Performance is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Performance Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Performance Food 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 Performance Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Performance Food has no effect on the direction of Microsoft i.e., Microsoft and Performance Food go up and down completely randomly.
Pair Corralation between Microsoft and Performance Food
Assuming the 90 days trading horizon Microsoft is expected to generate 1.43 times less return on investment than Performance Food. But when comparing it to its historical volatility, Microsoft is 1.29 times less risky than Performance Food. It trades about 0.07 of its potential returns per unit of risk. Performance Food Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,400 in Performance Food Group on August 25, 2024 and sell it today you would earn a total of 2,500 from holding Performance Food Group or generate 46.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Performance Food Group
Performance |
| Timeline |
| Microsoft |
| Performance Food |
Microsoft and Performance Food Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Performance Food
The main advantage of trading using opposite Microsoft and Performance Food positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Performance Food 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 Performance Food will offset losses from the drop in Performance Food's long position.| Microsoft vs. Perseus Mining Limited | Microsoft vs. GRIFFIN MINING LTD | Microsoft vs. National Health Investors | Microsoft vs. EHEALTH |
| Performance Food vs. Apple Inc | Performance Food vs. Apple Inc | Performance Food vs. Apple Inc | Performance Food vs. Apple Inc |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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