Correlation Between Microsoft and Collins Foods
Can any of the company-specific risk be diversified away by investing in both Microsoft and Collins Foods 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 Collins Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Collins Foods Limited, you can compare the effects of market volatilities on Microsoft and Collins Foods 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 Collins Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Collins Foods.
Diversification Opportunities for Microsoft and Collins Foods
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Collins is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Collins Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collins Foods Limited 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 Collins Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collins Foods Limited has no effect on the direction of Microsoft i.e., Microsoft and Collins Foods go up and down completely randomly.
Pair Corralation between Microsoft and Collins Foods
Assuming the 90 days trading horizon Microsoft is expected to generate 0.71 times more return on investment than Collins Foods. However, Microsoft is 1.42 times less risky than Collins Foods. It trades about 0.08 of its potential returns per unit of risk. Collins Foods Limited is currently generating about 0.03 per unit of risk. If you would invest 23,631 in Microsoft on September 3, 2024 and sell it today you would earn a total of 16,424 from holding Microsoft or generate 69.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Collins Foods Limited
Performance |
| Timeline |
| Microsoft |
| Collins Foods Limited |
Microsoft and Collins Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Collins Foods
The main advantage of trading using opposite Microsoft and Collins Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Collins Foods 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 Collins Foods will offset losses from the drop in Collins Foods' long position.| Microsoft vs. Collins Foods Limited | Microsoft vs. United Natural Foods | Microsoft vs. USU Software AG | Microsoft vs. National Beverage Corp |
| Collins Foods vs. COMBA TELECOM SYST | Collins Foods vs. UNITED UTILITIES GR | Collins Foods vs. Chesapeake Utilities | Collins Foods vs. MTI WIRELESS EDGE |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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