Correlation Between Microsoft and Cable One
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cable One 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 Cable One into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cable One, you can compare the effects of market volatilities on Microsoft and Cable One 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 Cable One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cable One.
Diversification Opportunities for Microsoft and Cable One
Good diversification
The 3 months correlation between Microsoft and Cable is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cable One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cable One 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 Cable One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cable One has no effect on the direction of Microsoft i.e., Microsoft and Cable One go up and down completely randomly.
Pair Corralation between Microsoft and Cable One
Given the investment horizon of 90 days Microsoft is expected to under-perform the Cable One. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.23 times less risky than Cable One. The stock trades about -0.06 of its potential returns per unit of risk. The Cable One is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 970.00 in Cable One on August 24, 2024 and sell it today you would earn a total of 203.00 from holding Cable One or generate 20.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Microsoft vs. Cable One
Performance |
| Timeline |
| Microsoft |
| Cable One |
Microsoft and Cable One Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cable One
The main advantage of trading using opposite Microsoft and Cable One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cable One 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 Cable One will offset losses from the drop in Cable One's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Cable One vs. Credit Acceptance | Cable One vs. Sumitomo Mitsui Financial | Cable One vs. Mitsubishi UFJ Financial | Cable One vs. Micron Technology |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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