Correlation Between Microsoft and PVH Corp
Can any of the company-specific risk be diversified away by investing in both Microsoft and PVH Corp 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 PVH Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and PVH Corp, you can compare the effects of market volatilities on Microsoft and PVH Corp 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 PVH Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and PVH Corp.
Diversification Opportunities for Microsoft and PVH Corp
Very poor diversification
The 3 months correlation between Microsoft and PVH is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and PVH Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PVH Corp 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 PVH Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PVH Corp has no effect on the direction of Microsoft i.e., Microsoft and PVH Corp go up and down completely randomly.
Pair Corralation between Microsoft and PVH Corp
Assuming the 90 days trading horizon Microsoft is expected to generate 1.84 times less return on investment than PVH Corp. But when comparing it to its historical volatility, Microsoft is 1.04 times less risky than PVH Corp. It trades about 0.11 of its potential returns per unit of risk. PVH Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 8,673 in PVH Corp on September 20, 2024 and sell it today you would earn a total of 1,762 from holding PVH Corp or generate 20.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. PVH Corp
Performance |
| Timeline |
| Microsoft |
| PVH Corp |
Microsoft and PVH Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and PVH Corp
The main advantage of trading using opposite Microsoft and PVH Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, PVH Corp 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 PVH Corp will offset losses from the drop in PVH Corp's long position.| Microsoft vs. MUTUIONLINE | Microsoft vs. Evolution Mining Limited | Microsoft vs. BE Semiconductor Industries | Microsoft vs. PACIFIC ONLINE |
| PVH Corp vs. CHINA TELECOM H | PVH Corp vs. INTERSHOP Communications Aktiengesellschaft | PVH Corp vs. Dairy Farm International | PVH Corp vs. Associated British Foods |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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