Correlation Between Microsoft and SSP Group
Can any of the company-specific risk be diversified away by investing in both Microsoft and SSP 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 SSP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and SSP Group PLC, you can compare the effects of market volatilities on Microsoft and SSP 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 SSP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and SSP Group.
Diversification Opportunities for Microsoft and SSP Group
Poor diversification
The 3 months correlation between Microsoft and SSP is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and SSP Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSP 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 SSP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSP Group PLC has no effect on the direction of Microsoft i.e., Microsoft and SSP Group go up and down completely randomly.
Pair Corralation between Microsoft and SSP Group
Assuming the 90 days trading horizon Microsoft is expected to generate 0.74 times more return on investment than SSP Group. However, Microsoft is 1.36 times less risky than SSP Group. It trades about -0.32 of its potential returns per unit of risk. SSP Group PLC is currently generating about -0.32 per unit of risk. If you would invest 43,000 in Microsoft on October 15, 2024 and sell it today you would lose (2,105) from holding Microsoft or give up 4.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. SSP Group PLC
Performance |
| Timeline |
| Microsoft |
| SSP Group PLC |
Microsoft and SSP Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and SSP Group
The main advantage of trading using opposite Microsoft and SSP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, SSP 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 SSP Group will offset losses from the drop in SSP Group's long position.| Microsoft vs. Major Drilling Group | Microsoft vs. Solstad Offshore ASA | Microsoft vs. CN DATANG C | Microsoft vs. CSSC Offshore Marine |
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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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