Correlation Between Microsoft and American Rare
Can any of the company-specific risk be diversified away by investing in both Microsoft and American Rare 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 Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and American Rare Earths, you can compare the effects of market volatilities on Microsoft and American Rare 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 Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and American Rare.
Diversification Opportunities for Microsoft and American Rare
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and American is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths 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 Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of Microsoft i.e., Microsoft and American Rare go up and down completely randomly.
Pair Corralation between Microsoft and American Rare
Given the investment horizon of 90 days Microsoft is expected to generate 6.63 times less return on investment than American Rare. But when comparing it to its historical volatility, Microsoft is 5.82 times less risky than American Rare. It trades about 0.05 of its potential returns per unit of risk. American Rare Earths is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 16.00 in American Rare Earths on September 3, 2024 and sell it today you would earn a total of 11.00 from holding American Rare Earths or generate 68.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.2% |
| Values | Daily Returns |
Microsoft vs. American Rare Earths
Performance |
| Timeline |
| Microsoft |
| American Rare Earths |
Microsoft and American Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and American Rare
The main advantage of trading using opposite Microsoft and American Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, American Rare 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 Rare will offset losses from the drop in American Rare's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| American Rare vs. Alto Metals | American Rare vs. Ora Banda Mining | American Rare vs. Perseus Mining | American Rare vs. National Storage REIT |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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