Correlation Between Microsoft and Bayer AG
Can any of the company-specific risk be diversified away by investing in both Microsoft and Bayer AG 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 Bayer AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Bayer AG, you can compare the effects of market volatilities on Microsoft and Bayer AG 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 Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Bayer AG.
Diversification Opportunities for Microsoft and Bayer AG
Significant diversification
The 3 months correlation between Microsoft and Bayer is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG 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 Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG has no effect on the direction of Microsoft i.e., Microsoft and Bayer AG go up and down completely randomly.
Pair Corralation between Microsoft and Bayer AG
Given the investment horizon of 90 days Microsoft is expected to generate 0.49 times more return on investment than Bayer AG. However, Microsoft is 2.03 times less risky than Bayer AG. It trades about -0.06 of its potential returns per unit of risk. Bayer AG is currently generating about -0.39 per unit of risk. If you would invest 42,375 in Microsoft on August 24, 2024 and sell it today you would lose (1,088) from holding Microsoft or give up 2.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Microsoft vs. Bayer AG
Performance |
| Timeline |
| Microsoft |
| Bayer AG |
Microsoft and Bayer AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Bayer AG
The main advantage of trading using opposite Microsoft and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Bayer AG 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 Bayer AG will offset losses from the drop in Bayer AG's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Bayer AG vs. Kaiser Aluminum | Bayer AG vs. Iridium Communications | Bayer AG vs. Weibo Corp | Bayer AG vs. Maanshan Iron Steel |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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