Correlation Between Microsoft and BRIT AMER
Can any of the company-specific risk be diversified away by investing in both Microsoft and BRIT AMER 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 BRIT AMER into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and BRIT AMER TOBACCO, you can compare the effects of market volatilities on Microsoft and BRIT AMER 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 BRIT AMER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and BRIT AMER.
Diversification Opportunities for Microsoft and BRIT AMER
Average diversification
The 3 months correlation between Microsoft and BRIT is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BRIT AMER TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRIT AMER TOBACCO 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 BRIT AMER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRIT AMER TOBACCO has no effect on the direction of Microsoft i.e., Microsoft and BRIT AMER go up and down completely randomly.
Pair Corralation between Microsoft and BRIT AMER
Assuming the 90 days trading horizon Microsoft is expected to generate 1.26 times more return on investment than BRIT AMER. However, Microsoft is 1.26 times more volatile than BRIT AMER TOBACCO. It trades about 0.08 of its potential returns per unit of risk. BRIT AMER TOBACCO is currently generating about 0.01 per unit of risk. If you would invest 22,929 in Microsoft on August 27, 2024 and sell it today you would earn a total of 16,866 from holding Microsoft or generate 73.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. BRIT AMER TOBACCO
Performance |
| Timeline |
| Microsoft |
| BRIT AMER TOBACCO |
Microsoft and BRIT AMER Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and BRIT AMER
The main advantage of trading using opposite Microsoft and BRIT AMER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, BRIT AMER 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 BRIT AMER will offset losses from the drop in BRIT AMER's long position.| Microsoft vs. Media and Games | Microsoft vs. Martin Marietta Materials | Microsoft vs. Summit Materials | Microsoft vs. Vulcan Materials |
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 CEOs Directory module to screen CEOs from public companies around the world.
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