Correlation Between Microsoft and Sumitomo Mitsui
Can any of the company-specific risk be diversified away by investing in both Microsoft and Sumitomo Mitsui 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 Sumitomo Mitsui into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Sumitomo Mitsui Construction, you can compare the effects of market volatilities on Microsoft and Sumitomo Mitsui 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 Sumitomo Mitsui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Sumitomo Mitsui.
Diversification Opportunities for Microsoft and Sumitomo Mitsui
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Sumitomo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Sumitomo Mitsui Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Cons 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 Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Cons has no effect on the direction of Microsoft i.e., Microsoft and Sumitomo Mitsui go up and down completely randomly.
Pair Corralation between Microsoft and Sumitomo Mitsui
Assuming the 90 days trading horizon Microsoft is expected to generate 0.93 times more return on investment than Sumitomo Mitsui. However, Microsoft is 1.07 times less risky than Sumitomo Mitsui. It trades about 0.1 of its potential returns per unit of risk. Sumitomo Mitsui Construction is currently generating about -0.02 per unit of risk. If you would invest 21,990 in Microsoft on October 19, 2024 and sell it today you would earn a total of 19,860 from holding Microsoft or generate 90.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Sumitomo Mitsui Construction
Performance |
| Timeline |
| Microsoft |
| Sumitomo Mitsui Cons |
Microsoft and Sumitomo Mitsui Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Sumitomo Mitsui
The main advantage of trading using opposite Microsoft and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Sumitomo Mitsui 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 Sumitomo Mitsui will offset losses from the drop in Sumitomo Mitsui's long position.| Microsoft vs. Hyatt Hotels | Microsoft vs. InterContinental Hotels Group | Microsoft vs. COSTCO WHOLESALE CDR | Microsoft vs. FAST RETAIL ADR |
| Sumitomo Mitsui vs. CARSALESCOM | Sumitomo Mitsui vs. TRADEGATE | Sumitomo Mitsui vs. Corporate Office Properties | Sumitomo Mitsui vs. FAST RETAIL ADR |
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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