Correlation Between Microsoft and Cathay Dow
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cathay Dow 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 Cathay Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cathay Dow Jones, you can compare the effects of market volatilities on Microsoft and Cathay Dow 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 Cathay Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cathay Dow.
Diversification Opportunities for Microsoft and Cathay Dow
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Cathay is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cathay Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Dow Jones 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 Cathay Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Dow Jones has no effect on the direction of Microsoft i.e., Microsoft and Cathay Dow go up and down completely randomly.
Pair Corralation between Microsoft and Cathay Dow
Given the investment horizon of 90 days Microsoft is expected to under-perform the Cathay Dow. In addition to that, Microsoft is 1.76 times more volatile than Cathay Dow Jones. It trades about -0.04 of its total potential returns per unit of risk. Cathay Dow Jones is currently generating about 0.2 per unit of volatility. If you would invest 1,530 in Cathay Dow Jones on August 27, 2024 and sell it today you would earn a total of 64.00 from holding Cathay Dow Jones or generate 4.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cathay Dow Jones
Performance |
| Timeline |
| Microsoft |
| Cathay Dow Jones |
Microsoft and Cathay Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cathay Dow
The main advantage of trading using opposite Microsoft and Cathay Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cathay Dow 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 Cathay Dow will offset losses from the drop in Cathay Dow's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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