Correlation Between Microsoft and LS Materials
Can any of the company-specific risk be diversified away by investing in both Microsoft and LS Materials 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 LS Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and LS Materials, you can compare the effects of market volatilities on Microsoft and LS Materials 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 LS Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and LS Materials.
Diversification Opportunities for Microsoft and LS Materials
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and 417200 is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and LS Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LS Materials 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 LS Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LS Materials has no effect on the direction of Microsoft i.e., Microsoft and LS Materials go up and down completely randomly.
Pair Corralation between Microsoft and LS Materials
Given the investment horizon of 90 days Microsoft is expected to generate 12.0 times less return on investment than LS Materials. But when comparing it to its historical volatility, Microsoft is 15.54 times less risky than LS Materials. It trades about 0.07 of its potential returns per unit of risk. LS Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 599,449 in LS Materials on August 26, 2024 and sell it today you would earn a total of 586,551 from holding LS Materials or generate 97.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 59.39% |
| Values | Daily Returns |
Microsoft vs. LS Materials
Performance |
| Timeline |
| Microsoft |
| LS Materials |
Microsoft and LS Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and LS Materials
The main advantage of trading using opposite Microsoft and LS Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, LS Materials 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 LS Materials will offset losses from the drop in LS Materials' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| LS Materials vs. Samsung Electronics Co | LS Materials vs. Samsung Electronics Co | LS Materials vs. LG Energy Solution | LS Materials vs. SK Hynix |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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