Correlation Between Microsoft and Cape Lambert
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cape Lambert 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 Cape Lambert into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cape Lambert Resources, you can compare the effects of market volatilities on Microsoft and Cape Lambert 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 Cape Lambert. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cape Lambert.
Diversification Opportunities for Microsoft and Cape Lambert
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Cape is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cape Lambert Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cape Lambert Resources 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 Cape Lambert. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cape Lambert Resources has no effect on the direction of Microsoft i.e., Microsoft and Cape Lambert go up and down completely randomly.
Pair Corralation between Microsoft and Cape Lambert
Assuming the 90 days trading horizon Microsoft is expected to generate 286.28 times less return on investment than Cape Lambert. But when comparing it to its historical volatility, Microsoft is 65.42 times less risky than Cape Lambert. It trades about 0.03 of its potential returns per unit of risk. Cape Lambert Resources is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 0.05 in Cape Lambert Resources on September 19, 2024 and sell it today you would earn a total of 1.45 from holding Cape Lambert Resources or generate 2900.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cape Lambert Resources
Performance |
| Timeline |
| Microsoft |
| Cape Lambert Resources |
Microsoft and Cape Lambert Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cape Lambert
The main advantage of trading using opposite Microsoft and Cape Lambert positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cape Lambert 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 Cape Lambert will offset losses from the drop in Cape Lambert's long position.| Microsoft vs. Bumrungrad Hospital Public | Microsoft vs. SHIP HEALTHCARE HLDGINC | Microsoft vs. National Health Investors | Microsoft vs. Sabra Health Care |
| Cape Lambert vs. Apple Inc | Cape Lambert vs. Apple Inc | Cape Lambert vs. Apple Inc | Cape Lambert 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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