Correlation Between Microsoft and Bank of East
Can any of the company-specific risk be diversified away by investing in both Microsoft and Bank of East 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 Bank of East into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Bank of East, you can compare the effects of market volatilities on Microsoft and Bank of East 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 Bank of East. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Bank of East.
Diversification Opportunities for Microsoft and Bank of East
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and Bank is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Bank of East in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of East 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 Bank of East. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of East has no effect on the direction of Microsoft i.e., Microsoft and Bank of East go up and down completely randomly.
Pair Corralation between Microsoft and Bank of East
Given the investment horizon of 90 days Microsoft is expected to under-perform the Bank of East. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.25 times less risky than Bank of East. The stock trades about -0.07 of its potential returns per unit of risk. The Bank of East is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 125.00 in Bank of East on October 23, 2024 and sell it today you would earn a total of 0.00 from holding Bank of East or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Bank of East
Performance |
| Timeline |
| Microsoft |
| Bank of East |
Microsoft and Bank of East Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Bank of East
The main advantage of trading using opposite Microsoft and Bank of East positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Bank of East 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 Bank of East will offset losses from the drop in Bank of East's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. BLOCK INC | Microsoft vs. Adobe Systems Incorporated |
| Bank of East vs. First Foundation | Bank of East vs. Metropolitan Bank Holding | Bank of East vs. MT Bank | Bank of East vs. Regions Financial |
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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