Correlation Between Microsoft and Kellogg
Can any of the company-specific risk be diversified away by investing in both Microsoft and Kellogg 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 Kellogg into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Kellogg Company, you can compare the effects of market volatilities on Microsoft and Kellogg 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 Kellogg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Kellogg.
Diversification Opportunities for Microsoft and Kellogg
Good diversification
The 3 months correlation between Microsoft and Kellogg is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Kellogg Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kellogg Company 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 Kellogg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kellogg Company has no effect on the direction of Microsoft i.e., Microsoft and Kellogg go up and down completely randomly.
Pair Corralation between Microsoft and Kellogg
Assuming the 90 days trading horizon Microsoft is expected to under-perform the Kellogg. In addition to that, Microsoft is 2.22 times more volatile than Kellogg Company. It trades about -0.04 of its total potential returns per unit of risk. Kellogg Company is currently generating about 0.14 per unit of volatility. If you would invest 7,722 in Kellogg Company on November 27, 2024 and sell it today you would earn a total of 224.00 from holding Kellogg Company or generate 2.9% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 95.45% |
Values | Daily Returns |
Microsoft vs. Kellogg Company
Performance |
Timeline |
Microsoft |
Kellogg Company |
Microsoft and Kellogg Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Kellogg
The main advantage of trading using opposite Microsoft and Kellogg positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Kellogg 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 Kellogg will offset losses from the drop in Kellogg's long position.Microsoft vs. Corporate Travel Management | Microsoft vs. Nordic Semiconductor ASA | Microsoft vs. CEOTRONICS | Microsoft vs. Tower One Wireless |
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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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