Correlation Between Microsoft and Better Home
Can any of the company-specific risk be diversified away by investing in both Microsoft and Better Home 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 Better Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Better Home Finance, you can compare the effects of market volatilities on Microsoft and Better Home 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 Better Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Better Home.
Diversification Opportunities for Microsoft and Better Home
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Better is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Better Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better Home Finance 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 Better Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better Home Finance has no effect on the direction of Microsoft i.e., Microsoft and Better Home go up and down completely randomly.
Pair Corralation between Microsoft and Better Home
Given the investment horizon of 90 days Microsoft is expected to generate 42.54 times less return on investment than Better Home. But when comparing it to its historical volatility, Microsoft is 13.29 times less risky than Better Home. It trades about 0.02 of its potential returns per unit of risk. Better Home Finance is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 10.00 in Better Home Finance on September 2, 2024 and sell it today you would lose (2.00) from holding Better Home Finance or give up 20.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 63.49% |
| Values | Daily Returns |
Microsoft vs. Better Home Finance
Performance |
| Timeline |
| Microsoft |
| Better Home Finance |
Microsoft and Better Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Better Home
The main advantage of trading using opposite Microsoft and Better Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Better Home 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 Better Home will offset losses from the drop in Better Home's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Better Home vs. Mills Music Trust | Better Home vs. Rackspace Technology | Better Home vs. Avient Corp | Better Home vs. Q2 Holdings |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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