Correlation Between Microsoft and China Railway
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Railway 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 China Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Railway Construction, you can compare the effects of market volatilities on Microsoft and China Railway 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 China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Railway.
Diversification Opportunities for Microsoft and China Railway
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and China is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Microsoft i.e., Microsoft and China Railway go up and down completely randomly.
Pair Corralation between Microsoft and China Railway
Given the investment horizon of 90 days Microsoft is expected to generate 1.62 times less return on investment than China Railway. But when comparing it to its historical volatility, Microsoft is 2.47 times less risky than China Railway. It trades about 0.02 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 64.00 in China Railway Construction on August 31, 2024 and sell it today you would earn a total of 0.00 from holding China Railway Construction or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.45% |
| Values | Daily Returns |
Microsoft vs. China Railway Construction
Performance |
| Timeline |
| Microsoft |
| China Railway Constr |
Microsoft and China Railway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Railway
The main advantage of trading using opposite Microsoft and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Railway 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 China Railway will offset losses from the drop in China Railway's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China Railway vs. CPU SOFTWAREHOUSE | China Railway vs. Magic Software Enterprises | China Railway vs. Japan Medical Dynamic | China Railway vs. Compugroup Medical SE |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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