Correlation Between Microsoft and Arad
Can any of the company-specific risk be diversified away by investing in both Microsoft and Arad 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 Arad into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Arad, you can compare the effects of market volatilities on Microsoft and Arad 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 Arad. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Arad.
Diversification Opportunities for Microsoft and Arad
Significant diversification
The 3 months correlation between Microsoft and Arad is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad 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 Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Microsoft i.e., Microsoft and Arad go up and down completely randomly.
Pair Corralation between Microsoft and Arad
Given the investment horizon of 90 days Microsoft is expected to under-perform the Arad. In addition to that, Microsoft is 1.58 times more volatile than Arad. It trades about -0.04 of its total potential returns per unit of risk. Arad is currently generating about 0.49 per unit of volatility. If you would invest 503,500 in Arad on August 25, 2024 and sell it today you would earn a total of 45,800 from holding Arad or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 77.27% |
| Values | Daily Returns |
Microsoft vs. Arad
Performance |
| Timeline |
| Microsoft |
| Arad |
Microsoft and Arad Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Arad
The main advantage of trading using opposite Microsoft and Arad positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Arad 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 Arad will offset losses from the drop in Arad's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Arad vs. One Software Technologies | Arad vs. Ormat Technologies | Arad vs. Migdal Insurance | Arad vs. Bio Meat Foodtech |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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