Correlation Between Microsoft and Bound
Can any of the company-specific risk be diversified away by investing in both Microsoft and Bound 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 Bound into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Bound and Beyond, you can compare the effects of market volatilities on Microsoft and Bound 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 Bound. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Bound.
Diversification Opportunities for Microsoft and Bound
Weak diversification
The 3 months correlation between Microsoft and Bound is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bound and Beyond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bound and Beyond 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 Bound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bound and Beyond has no effect on the direction of Microsoft i.e., Microsoft and Bound go up and down completely randomly.
Pair Corralation between Microsoft and Bound
Given the investment horizon of 90 days Microsoft is expected to generate 0.69 times more return on investment than Bound. However, Microsoft is 1.46 times less risky than Bound. It trades about 0.17 of its potential returns per unit of risk. Bound and Beyond is currently generating about -0.02 per unit of risk. If you would invest 40,764 in Microsoft on September 3, 2024 and sell it today you would earn a total of 1,582 from holding Microsoft or generate 3.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Microsoft vs. Bound and Beyond
Performance |
| Timeline |
| Microsoft |
| Bound and Beyond |
Microsoft and Bound Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Bound
The main advantage of trading using opposite Microsoft and Bound positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Bound 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 Bound will offset losses from the drop in Bound's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Bound vs. BCPG Public | Bound vs. Aqua Public | Bound vs. Energy Absolute Public | Bound vs. Bangkok Aviation Fuel |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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