Correlation Between Microsoft and St James’s
Can any of the company-specific risk be diversified away by investing in both Microsoft and St James’s 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 St James’s into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and St Jamess Place, you can compare the effects of market volatilities on Microsoft and St James’s 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 St James’s. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and St James’s.
Diversification Opportunities for Microsoft and St James’s
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and 1IV is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and St Jamess Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on St Jamess Place 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 St James’s. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of St Jamess Place has no effect on the direction of Microsoft i.e., Microsoft and St James’s go up and down completely randomly.
Pair Corralation between Microsoft and St James’s
Given the investment horizon of 90 days Microsoft is expected to generate 2.3 times less return on investment than St James’s. But when comparing it to its historical volatility, Microsoft is 2.33 times less risky than St James’s. It trades about 0.06 of its potential returns per unit of risk. St Jamess Place is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 759.00 in St Jamess Place on September 14, 2024 and sell it today you would earn a total of 314.00 from holding St Jamess Place or generate 41.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.18% |
| Values | Daily Returns |
Microsoft vs. St Jamess Place
Performance |
| Timeline |
| Microsoft |
| St Jamess Place |
Microsoft and St James’s Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and St James’s
The main advantage of trading using opposite Microsoft and St James’s positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, St James’s 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 St James’s will offset losses from the drop in St James’s' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| St James’s vs. PROSIEBENSAT1 MEDIADR4 | St James’s vs. X FAB Silicon Foundries | St James’s vs. PARKEN Sport Entertainment | St James’s vs. Nissan Chemical Corp |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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