Correlation Between Microsoft and BROADWIND ENRGY
Can any of the company-specific risk be diversified away by investing in both Microsoft and BROADWIND ENRGY 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 BROADWIND ENRGY into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and BROADWIND ENRGY, you can compare the effects of market volatilities on Microsoft and BROADWIND ENRGY 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 BROADWIND ENRGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and BROADWIND ENRGY.
Diversification Opportunities for Microsoft and BROADWIND ENRGY
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and BROADWIND is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and BROADWIND ENRGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BROADWIND ENRGY 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 BROADWIND ENRGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BROADWIND ENRGY has no effect on the direction of Microsoft i.e., Microsoft and BROADWIND ENRGY go up and down completely randomly.
Pair Corralation between Microsoft and BROADWIND ENRGY
Given the investment horizon of 90 days Microsoft is expected to generate 0.22 times more return on investment than BROADWIND ENRGY. However, Microsoft is 4.5 times less risky than BROADWIND ENRGY. It trades about 0.19 of its potential returns per unit of risk. BROADWIND ENRGY is currently generating about 0.03 per unit of risk. If you would invest 40,554 in Microsoft on September 1, 2024 and sell it today you would earn a total of 1,792 from holding Microsoft or generate 4.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. BROADWIND ENRGY
Performance |
| Timeline |
| Microsoft |
| BROADWIND ENRGY |
Microsoft and BROADWIND ENRGY Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and BROADWIND ENRGY
The main advantage of trading using opposite Microsoft and BROADWIND ENRGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, BROADWIND ENRGY 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 BROADWIND ENRGY will offset losses from the drop in BROADWIND ENRGY's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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