Correlation Between Microsoft Corp and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Microsoft Corp and Verizon Communications 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 Corp and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft Corp CDR and Verizon Communications CDR, you can compare the effects of market volatilities on Microsoft Corp and Verizon Communications 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 Corp with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Verizon Communications.
Diversification Opportunities for Microsoft Corp and Verizon Communications
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Verizon is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR and Verizon Communications CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Microsoft Corp 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 Corp CDR are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Verizon Communications go up and down completely randomly.
Pair Corralation between Microsoft Corp and Verizon Communications
Assuming the 90 days trading horizon Microsoft Corp CDR is expected to under-perform the Verizon Communications. In addition to that, Microsoft Corp is 1.47 times more volatile than Verizon Communications CDR. It trades about -0.04 of its total potential returns per unit of risk. Verizon Communications CDR is currently generating about 0.22 per unit of volatility. If you would invest 1,826 in Verizon Communications CDR on August 28, 2024 and sell it today you would earn a total of 98.00 from holding Verizon Communications CDR or generate 5.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft Corp CDR vs. Verizon Communications CDR
Performance |
| Timeline |
| Microsoft Corp CDR |
| Verizon Communications |
Microsoft Corp and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft Corp and Verizon Communications
The main advantage of trading using opposite Microsoft Corp and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Microsoft Corp vs. Telus Corp | Microsoft Corp vs. Toronto Dominion Bank | Microsoft Corp vs. Manulife Financial Corp | Microsoft Corp vs. Canadian Natural Resources |
| Verizon Communications vs. Alphabet Inc CDR | Verizon Communications vs. Microsoft Corp CDR | Verizon Communications vs. NVIDIA CDR | Verizon Communications vs. Tesla Inc CDR |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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