Correlation Between Microsoft and WPP PLC
Can any of the company-specific risk be diversified away by investing in both Microsoft and WPP PLC 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 WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and WPP PLC, you can compare the effects of market volatilities on Microsoft and WPP PLC 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 WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and WPP PLC.
Diversification Opportunities for Microsoft and WPP PLC
Poor diversification
The 3 months correlation between Microsoft and WPP is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Microsoft i.e., Microsoft and WPP PLC go up and down completely randomly.
Pair Corralation between Microsoft and WPP PLC
Assuming the 90 days trading horizon Microsoft is expected to generate 1.5 times less return on investment than WPP PLC. But when comparing it to its historical volatility, Microsoft is 1.15 times less risky than WPP PLC. It trades about 0.05 of its potential returns per unit of risk. WPP PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 802.00 in WPP PLC on September 2, 2024 and sell it today you would earn a total of 228.00 from holding WPP PLC or generate 28.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. WPP PLC
Performance |
| Timeline |
| Microsoft |
| WPP PLC |
Microsoft and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and WPP PLC
The main advantage of trading using opposite Microsoft and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.| Microsoft vs. SIVERS SEMICONDUCTORS AB | Microsoft vs. Darden Restaurants | Microsoft vs. Reliance Steel Aluminum | Microsoft vs. Q2M Managementberatung AG |
| WPP PLC vs. CHIBA BANK | WPP PLC vs. National Bank Holdings | WPP PLC vs. SOFTBANK P ADR | WPP PLC vs. Corporate Office Properties |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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