Correlation Between Microsoft and Ares International
Can any of the company-specific risk be diversified away by investing in both Microsoft and Ares International 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 Ares International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Ares International Corp, you can compare the effects of market volatilities on Microsoft and Ares International 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 Ares International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Ares International.
Diversification Opportunities for Microsoft and Ares International
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Ares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Ares International Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares International Corp 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 Ares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares International Corp has no effect on the direction of Microsoft i.e., Microsoft and Ares International go up and down completely randomly.
Pair Corralation between Microsoft and Ares International
Given the investment horizon of 90 days Microsoft is expected to generate 0.74 times more return on investment than Ares International. However, Microsoft is 1.35 times less risky than Ares International. It trades about 0.06 of its potential returns per unit of risk. Ares International Corp is currently generating about -0.23 per unit of risk. If you would invest 43,811 in Microsoft on October 26, 2024 and sell it today you would earn a total of 595.00 from holding Microsoft or generate 1.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.48% |
| Values | Daily Returns |
Microsoft vs. Ares International Corp
Performance |
| Timeline |
| Microsoft |
| Ares International Corp |
Microsoft and Ares International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Ares International
The main advantage of trading using opposite Microsoft and Ares International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Ares International 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 Ares International will offset losses from the drop in Ares International's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. BLOCK INC | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Ares International vs. Syscom Computer Engineering | Ares International vs. Stark Technology | Ares International vs. Audix Corp | Ares International vs. Fortune Information Systems |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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