Correlation Between Microsoft and Columbia
Can any of the company-specific risk be diversified away by investing in both Microsoft and Columbia 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 Columbia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Columbia Government Mortgage, you can compare the effects of market volatilities on Microsoft and Columbia 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 Columbia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Columbia.
Diversification Opportunities for Microsoft and Columbia
Average diversification
The 3 months correlation between Microsoft and Columbia is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Columbia Government Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Government 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 Columbia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Government has no effect on the direction of Microsoft i.e., Microsoft and Columbia go up and down completely randomly.
Pair Corralation between Microsoft and Columbia
Given the investment horizon of 90 days Microsoft is expected to generate 2.48 times more return on investment than Columbia. However, Microsoft is 2.48 times more volatile than Columbia Government Mortgage. It trades about 0.19 of its potential returns per unit of risk. Columbia Government Mortgage is currently generating about 0.11 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. Columbia Government Mortgage
Performance |
| Timeline |
| Microsoft |
| Columbia Government |
Microsoft and Columbia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Columbia
The main advantage of trading using opposite Microsoft and Columbia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Columbia 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 Columbia will offset losses from the drop in Columbia's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Columbia vs. Columbia Ultra Short | Columbia vs. Columbia Integrated Large | Columbia vs. Columbia Integrated Large | Columbia vs. Columbia Integrated Large |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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