Correlation Between Microsoft and B Communications
Can any of the company-specific risk be diversified away by investing in both Microsoft and B Communications 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 B Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and B Communications, you can compare the effects of market volatilities on Microsoft and B Communications 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 B Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and B Communications.
Diversification Opportunities for Microsoft and B Communications
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and BCOM is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and B Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on B Communications 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 B Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of B Communications has no effect on the direction of Microsoft i.e., Microsoft and B Communications go up and down completely randomly.
Pair Corralation between Microsoft and B Communications
Given the investment horizon of 90 days Microsoft is expected to under-perform the B Communications. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.34 times less risky than B Communications. The stock trades about -0.03 of its potential returns per unit of risk. The B Communications is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 130,000 in B Communications on August 24, 2024 and sell it today you would earn a total of 35,600 from holding B Communications or generate 27.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 73.91% |
| Values | Daily Returns |
Microsoft vs. B Communications
Performance |
| Timeline |
| Microsoft |
| B Communications |
Microsoft and B Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and B Communications
The main advantage of trading using opposite Microsoft and B Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, B Communications 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 B Communications will offset losses from the drop in B Communications' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| B Communications vs. Bezeq Israeli Telecommunication | B Communications vs. Partner | B Communications vs. Cellcom Israel | B Communications vs. Tower Semiconductor |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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