Correlation Between Microsoft and Alm Brand
Can any of the company-specific risk be diversified away by investing in both Microsoft and Alm Brand 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 Alm Brand into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Alm Brand, you can compare the effects of market volatilities on Microsoft and Alm Brand 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 Alm Brand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Alm Brand.
Diversification Opportunities for Microsoft and Alm Brand
Significant diversification
The 3 months correlation between Microsoft and Alm is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Alm Brand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alm Brand 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 Alm Brand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alm Brand has no effect on the direction of Microsoft i.e., Microsoft and Alm Brand go up and down completely randomly.
Pair Corralation between Microsoft and Alm Brand
Given the investment horizon of 90 days Microsoft is expected to generate 0.96 times more return on investment than Alm Brand. However, Microsoft is 1.05 times less risky than Alm Brand. It trades about 0.19 of its potential returns per unit of risk. Alm Brand is currently generating about 0.1 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. Alm Brand
Performance |
| Timeline |
| Microsoft |
| Alm Brand |
Microsoft and Alm Brand Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Alm Brand
The main advantage of trading using opposite Microsoft and Alm Brand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Alm Brand 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 Alm Brand will offset losses from the drop in Alm Brand's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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