Correlation Between Microsoft and AHLERS
Can any of the company-specific risk be diversified away by investing in both Microsoft and AHLERS 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 AHLERS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and AHLERS, you can compare the effects of market volatilities on Microsoft and AHLERS 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 AHLERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and AHLERS.
Diversification Opportunities for Microsoft and AHLERS
Very poor diversification
The 3 months correlation between Microsoft and AHLERS is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and AHLERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AHLERS 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 AHLERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AHLERS has no effect on the direction of Microsoft i.e., Microsoft and AHLERS go up and down completely randomly.
Pair Corralation between Microsoft and AHLERS
Assuming the 90 days trading horizon Microsoft is expected to generate 0.3 times more return on investment than AHLERS. However, Microsoft is 3.29 times less risky than AHLERS. It trades about 0.07 of its potential returns per unit of risk. AHLERS is currently generating about -0.02 per unit of risk. If you would invest 38,708 in Microsoft on October 18, 2024 and sell it today you would earn a total of 2,772 from holding Microsoft or generate 7.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. AHLERS
Performance |
| Timeline |
| Microsoft |
| AHLERS |
Microsoft and AHLERS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and AHLERS
The main advantage of trading using opposite Microsoft and AHLERS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, AHLERS 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 AHLERS will offset losses from the drop in AHLERS's long position.| Microsoft vs. Major Drilling Group | Microsoft vs. GALENA MINING LTD | Microsoft vs. Zijin Mining Group | Microsoft vs. ARDAGH METAL PACDL 0001 |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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