Correlation Between Microsoft and CVS Group
Can any of the company-specific risk be diversified away by investing in both Microsoft and CVS 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 CVS Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and CVS Group plc, you can compare the effects of market volatilities on Microsoft and CVS 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 CVS Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and CVS Group.
Diversification Opportunities for Microsoft and CVS Group
Excellent diversification
The 3 months correlation between Microsoft and CVS is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CVS Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS 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 CVS Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Group plc has no effect on the direction of Microsoft i.e., Microsoft and CVS Group go up and down completely randomly.
Pair Corralation between Microsoft and CVS Group
Assuming the 90 days trading horizon Microsoft is expected to generate 0.56 times more return on investment than CVS Group. However, Microsoft is 1.8 times less risky than CVS Group. It trades about 0.03 of its potential returns per unit of risk. CVS Group plc is currently generating about -0.07 per unit of risk. If you would invest 39,259 in Microsoft on September 5, 2024 and sell it today you would earn a total of 1,531 from holding Microsoft or generate 3.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.22% |
| Values | Daily Returns |
Microsoft vs. CVS Group plc
Performance |
| Timeline |
| Microsoft |
| CVS Group plc |
Microsoft and CVS Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and CVS Group
The main advantage of trading using opposite Microsoft and CVS Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, CVS 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 CVS Group will offset losses from the drop in CVS Group's long position.The idea behind Microsoft and CVS Group plc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| CVS Group vs. Ribbon Communications | CVS Group vs. SK TELECOM TDADR | CVS Group vs. Charter Communications | CVS Group vs. Gamma Communications plc |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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