Correlation Between Microsoft and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Microsoft and Volkswagen 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 Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Volkswagen AG, you can compare the effects of market volatilities on Microsoft and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Volkswagen.
Diversification Opportunities for Microsoft and Volkswagen
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Microsoft and Volkswagen is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Microsoft i.e., Microsoft and Volkswagen go up and down completely randomly.
Pair Corralation between Microsoft and Volkswagen
Assuming the 90 days trading horizon Microsoft is expected to generate 1.5 times more return on investment than Volkswagen. However, Microsoft is 1.5 times more volatile than Volkswagen AG. It trades about 0.04 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.45 per unit of risk. If you would invest 39,342 in Microsoft on August 28, 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 | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Volkswagen AG
Performance |
| Timeline |
| Microsoft |
| Volkswagen AG |
Microsoft and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Volkswagen
The main advantage of trading using opposite Microsoft and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen'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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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