Correlation Between Microsoft and Long Bon
Can any of the company-specific risk be diversified away by investing in both Microsoft and Long Bon 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 Long Bon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Long Bon International, you can compare the effects of market volatilities on Microsoft and Long Bon 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 Long Bon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Long Bon.
Diversification Opportunities for Microsoft and Long Bon
Excellent diversification
The 3 months correlation between Microsoft and Long is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Long Bon International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Bon International 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 Long Bon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Bon International has no effect on the direction of Microsoft i.e., Microsoft and Long Bon go up and down completely randomly.
Pair Corralation between Microsoft and Long Bon
Given the investment horizon of 90 days Microsoft is expected to generate 1.25 times more return on investment than Long Bon. However, Microsoft is 1.25 times more volatile than Long Bon International. It trades about 0.18 of its potential returns per unit of risk. Long Bon International is currently generating about -0.34 per unit of risk. If you would invest 41,700 in Microsoft on September 23, 2024 and sell it today you would earn a total of 1,960 from holding Microsoft or generate 4.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Long Bon International
Performance |
| Timeline |
| Microsoft |
| Long Bon International |
Microsoft and Long Bon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Long Bon
The main advantage of trading using opposite Microsoft and Long Bon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Long Bon 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 Long Bon will offset losses from the drop in Long Bon's long position.| Microsoft vs. BlackBerry | Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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