Correlation Between Microsoft and Wipro
Can any of the company-specific risk be diversified away by investing in both Microsoft and Wipro 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 Wipro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Wipro, you can compare the effects of market volatilities on Microsoft and Wipro 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 Wipro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Wipro.
Diversification Opportunities for Microsoft and Wipro
Modest diversification
The 3 months correlation between Microsoft and Wipro is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Wipro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wipro 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 Wipro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wipro has no effect on the direction of Microsoft i.e., Microsoft and Wipro go up and down completely randomly.
Pair Corralation between Microsoft and Wipro
Assuming the 90 days trading horizon Microsoft is expected to generate 1.01 times less return on investment than Wipro. But when comparing it to its historical volatility, Microsoft is 1.52 times less risky than Wipro. It trades about 0.07 of its potential returns per unit of risk. Wipro is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 208.00 in Wipro on December 4, 2024 and sell it today you would earn a total of 90.00 from holding Wipro or generate 43.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Microsoft vs. Wipro
Performance |
| Timeline |
| Microsoft |
| Wipro |
Microsoft and Wipro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Wipro
The main advantage of trading using opposite Microsoft and Wipro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Wipro 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 Wipro will offset losses from the drop in Wipro's long position.| Microsoft vs. East Africa Metals | Microsoft vs. SENECA FOODS A | Microsoft vs. Harmony Gold Mining | Microsoft vs. CN MODERN DAIRY |
| Wipro vs. COMBA TELECOM SYST | Wipro vs. Grupo Carso SAB | Wipro vs. COMMERCIAL VEHICLE | Wipro vs. Verizon Communications |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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