Correlation Between Microsoft and Bridge Builder
Can any of the company-specific risk be diversified away by investing in both Microsoft and Bridge Builder 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 Bridge Builder into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Bridge Builder Large, you can compare the effects of market volatilities on Microsoft and Bridge Builder 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 Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Bridge Builder.
Diversification Opportunities for Microsoft and Bridge Builder
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Bridge is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bridge Builder Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Large 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 Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Large has no effect on the direction of Microsoft i.e., Microsoft and Bridge Builder go up and down completely randomly.
Pair Corralation between Microsoft and Bridge Builder
Given the investment horizon of 90 days Microsoft is expected to generate 1.88 times more return on investment than Bridge Builder. However, Microsoft is 1.88 times more volatile than Bridge Builder Large. It trades about 0.08 of its potential returns per unit of risk. Bridge Builder Large is currently generating about 0.05 per unit of risk. If you would invest 24,767 in Microsoft on November 21, 2024 and sell it today you would earn a total of 16,710 from holding Microsoft or generate 67.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Bridge Builder Large
Performance |
| Timeline |
| Microsoft |
| Bridge Builder Large |
Microsoft and Bridge Builder Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Bridge Builder
The main advantage of trading using opposite Microsoft and Bridge Builder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Bridge Builder 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 Bridge Builder will offset losses from the drop in Bridge Builder's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Bridge Builder vs. Putnam Global Health | Bridge Builder vs. Lord Abbett Health | Bridge Builder vs. Highland Longshort Healthcare | Bridge Builder vs. Deutsche Health And |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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