Correlation Between Microsoft and Intel
Can any of the company-specific risk be diversified away by investing in both Microsoft and Intel 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 Intel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Intel, you can compare the effects of market volatilities on Microsoft and Intel 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 Intel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Intel.
Diversification Opportunities for Microsoft and Intel
Poor diversification
The 3 months correlation between Microsoft and Intel is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Intel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intel 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 Intel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intel has no effect on the direction of Microsoft i.e., Microsoft and Intel go up and down completely randomly.
Pair Corralation between Microsoft and Intel
Assuming the 90 days trading horizon Microsoft is expected to generate 6.06 times less return on investment than Intel. But when comparing it to its historical volatility, Microsoft is 1.9 times less risky than Intel. It trades about 0.04 of its potential returns per unit of risk. Intel is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,133 in Intel on August 28, 2024 and sell it today you would earn a total of 217.00 from holding Intel or generate 10.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Intel
Performance |
| Timeline |
| Microsoft |
| Intel |
Microsoft and Intel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Intel
The main advantage of trading using opposite Microsoft and Intel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Intel 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 Intel will offset losses from the drop in Intel'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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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