Correlation Between Microsoft and American Homes
Can any of the company-specific risk be diversified away by investing in both Microsoft and American Homes 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 American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and American Homes 4, you can compare the effects of market volatilities on Microsoft and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and American Homes.
Diversification Opportunities for Microsoft and American Homes
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Microsoft i.e., Microsoft and American Homes go up and down completely randomly.
Pair Corralation between Microsoft and American Homes
Given the investment horizon of 90 days Microsoft is expected to generate 1.58 times more return on investment than American Homes. However, Microsoft is 1.58 times more volatile than American Homes 4. It trades about 0.15 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.03 per unit of risk. If you would invest 40,955 in Microsoft on September 2, 2024 and sell it today you would earn a total of 1,391 from holding Microsoft or generate 3.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. American Homes 4
Performance |
| Timeline |
| Microsoft |
| American Homes 4 |
Microsoft and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and American Homes
The main advantage of trading using opposite Microsoft and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| American Homes vs. American Homes 4 | American Homes vs. BRT Realty Trust | American Homes vs. Nexpoint Residential Trust | American Homes vs. Centerspace |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
Other Complementary Tools
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Equity Valuation Check real value of public entities based on technical and fundamental data |