Correlation Between Microsoft and LG Electronics
Can any of the company-specific risk be diversified away by investing in both Microsoft and LG Electronics 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 LG Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and LG Electronics, you can compare the effects of market volatilities on Microsoft and LG Electronics 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 LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and LG Electronics.
Diversification Opportunities for Microsoft and LG Electronics
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and LGLG is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics 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 LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Microsoft i.e., Microsoft and LG Electronics go up and down completely randomly.
Pair Corralation between Microsoft and LG Electronics
Assuming the 90 days trading horizon Microsoft is expected to generate 0.66 times more return on investment than LG Electronics. However, Microsoft is 1.51 times less risky than LG Electronics. It trades about 0.08 of its potential returns per unit of risk. LG Electronics is currently generating about -0.01 per unit of risk. If you would invest 23,157 in Microsoft on November 19, 2024 and sell it today you would earn a total of 15,643 from holding Microsoft or generate 67.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. LG Electronics
Performance |
| Timeline |
| Microsoft |
| LG Electronics |
Microsoft and LG Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and LG Electronics
The main advantage of trading using opposite Microsoft and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.| Microsoft vs. HEALTHSTREAM | Microsoft vs. Phibro Animal Health | Microsoft vs. Lendlease Group | Microsoft vs. LOANDEPOT INC A |
| LG Electronics vs. CNVISION MEDIA | LG Electronics vs. PARKEN Sport Entertainment | LG Electronics vs. CVW CLEANTECH INC | LG Electronics vs. Prosiebensat 1 Media |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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