Correlation Between Microsoft and CDL INVESTMENT
Can any of the company-specific risk be diversified away by investing in both Microsoft and CDL INVESTMENT 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 CDL INVESTMENT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and CDL INVESTMENT, you can compare the effects of market volatilities on Microsoft and CDL INVESTMENT 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 CDL INVESTMENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and CDL INVESTMENT.
Diversification Opportunities for Microsoft and CDL INVESTMENT
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and CDL is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and CDL INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDL INVESTMENT 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 CDL INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDL INVESTMENT has no effect on the direction of Microsoft i.e., Microsoft and CDL INVESTMENT go up and down completely randomly.
Pair Corralation between Microsoft and CDL INVESTMENT
Assuming the 90 days trading horizon Microsoft is expected to generate 0.57 times more return on investment than CDL INVESTMENT. However, Microsoft is 1.77 times less risky than CDL INVESTMENT. It trades about 0.09 of its potential returns per unit of risk. CDL INVESTMENT is currently generating about 0.02 per unit of risk. If you would invest 30,095 in Microsoft on September 26, 2024 and sell it today you would earn a total of 11,870 from holding Microsoft or generate 39.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. CDL INVESTMENT
Performance |
| Timeline |
| Microsoft |
| CDL INVESTMENT |
Microsoft and CDL INVESTMENT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and CDL INVESTMENT
The main advantage of trading using opposite Microsoft and CDL INVESTMENT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, CDL INVESTMENT 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 CDL INVESTMENT will offset losses from the drop in CDL INVESTMENT's long position.The idea behind Microsoft and CDL INVESTMENT 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.| CDL INVESTMENT vs. Apple Inc | CDL INVESTMENT vs. Apple Inc | CDL INVESTMENT vs. Microsoft | CDL INVESTMENT vs. Microsoft |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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