Correlation Between Microsoft and APPLIED MATERIALS
Can any of the company-specific risk be diversified away by investing in both Microsoft and APPLIED MATERIALS 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 APPLIED MATERIALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and APPLIED MATERIALS, you can compare the effects of market volatilities on Microsoft and APPLIED MATERIALS 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 APPLIED MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and APPLIED MATERIALS.
Diversification Opportunities for Microsoft and APPLIED MATERIALS
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and APPLIED is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and APPLIED MATERIALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APPLIED MATERIALS 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 APPLIED MATERIALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APPLIED MATERIALS has no effect on the direction of Microsoft i.e., Microsoft and APPLIED MATERIALS go up and down completely randomly.
Pair Corralation between Microsoft and APPLIED MATERIALS
Assuming the 90 days trading horizon Microsoft is expected to generate 0.74 times more return on investment than APPLIED MATERIALS. However, Microsoft is 1.36 times less risky than APPLIED MATERIALS. It trades about 0.04 of its potential returns per unit of risk. APPLIED MATERIALS is currently generating about -0.06 per unit of risk. If you would invest 39,342 in Microsoft on August 27, 2024 and sell it today you would earn a total of 568.00 from holding Microsoft or generate 1.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. APPLIED MATERIALS
Performance |
| Timeline |
| Microsoft |
| APPLIED MATERIALS |
Microsoft and APPLIED MATERIALS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and APPLIED MATERIALS
The main advantage of trading using opposite Microsoft and APPLIED MATERIALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, APPLIED MATERIALS 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 APPLIED MATERIALS will offset losses from the drop in APPLIED MATERIALS's long position.| Microsoft vs. Media and Games | Microsoft vs. Martin Marietta Materials | Microsoft vs. Summit Materials | Microsoft vs. Vulcan Materials |
| APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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