Correlation Between Microsoft and Volvo AB
Can any of the company-specific risk be diversified away by investing in both Microsoft and Volvo AB 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 Volvo AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Volvo AB Series, you can compare the effects of market volatilities on Microsoft and Volvo AB 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 Volvo AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Volvo AB.
Diversification Opportunities for Microsoft and Volvo AB
Modest diversification
The 3 months correlation between Microsoft and Volvo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Volvo AB Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB Series 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 Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB Series has no effect on the direction of Microsoft i.e., Microsoft and Volvo AB go up and down completely randomly.
Pair Corralation between Microsoft and Volvo AB
Given the investment horizon of 90 days Microsoft is expected to generate 0.9 times more return on investment than Volvo AB. However, Microsoft is 1.12 times less risky than Volvo AB. It trades about 0.32 of its potential returns per unit of risk. Volvo AB Series is currently generating about 0.05 per unit of risk. If you would invest 42,218 in Microsoft on September 13, 2024 and sell it today you would earn a total of 3,249 from holding Microsoft or generate 7.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Microsoft vs. Volvo AB Series
Performance |
| Timeline |
| Microsoft |
| Volvo AB Series |
Microsoft and Volvo AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Volvo AB
The main advantage of trading using opposite Microsoft and Volvo AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Volvo AB 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 Volvo AB will offset losses from the drop in Volvo AB's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Volvo AB vs. Alfa Financial Software | Volvo AB vs. Hochschild Mining plc | Volvo AB vs. Anglesey Mining | Volvo AB vs. Sunny Optical Technology |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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