Correlation Between Microsoft and Smiths Group
Can any of the company-specific risk be diversified away by investing in both Microsoft and Smiths Group 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 Smiths Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Smiths Group plc, you can compare the effects of market volatilities on Microsoft and Smiths Group 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 Smiths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Smiths Group.
Diversification Opportunities for Microsoft and Smiths Group
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Smiths is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Smiths Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group 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 Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group plc has no effect on the direction of Microsoft i.e., Microsoft and Smiths Group go up and down completely randomly.
Pair Corralation between Microsoft and Smiths Group
Assuming the 90 days trading horizon Microsoft is expected to generate 1.08 times more return on investment than Smiths Group. However, Microsoft is 1.08 times more volatile than Smiths Group plc. It trades about 0.06 of its potential returns per unit of risk. Smiths Group plc is currently generating about 0.03 per unit of risk. If you would invest 30,318 in Microsoft on September 2, 2024 and sell it today you would earn a total of 9,747 from holding Microsoft or generate 32.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Smiths Group plc
Performance |
| Timeline |
| Microsoft |
| Smiths Group plc |
Microsoft and Smiths Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Smiths Group
The main advantage of trading using opposite Microsoft and Smiths Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Smiths Group 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 Smiths Group will offset losses from the drop in Smiths Group's long position.| Microsoft vs. SIVERS SEMICONDUCTORS AB | Microsoft vs. Darden Restaurants | Microsoft vs. Reliance Steel Aluminum | Microsoft vs. Q2M Managementberatung AG |
| Smiths Group vs. Rogers Communications | Smiths Group vs. Ribbon Communications | Smiths Group vs. Texas Roadhouse | Smiths Group vs. INTERSHOP Communications Aktiengesellschaft |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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