Correlation Between Microsoft and China Automotive
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Automotive 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 China Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Automotive Systems, you can compare the effects of market volatilities on Microsoft and China Automotive 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 China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Automotive.
Diversification Opportunities for Microsoft and China Automotive
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and China is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems 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 China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of Microsoft i.e., Microsoft and China Automotive go up and down completely randomly.
Pair Corralation between Microsoft and China Automotive
Given the investment horizon of 90 days Microsoft is expected to generate 16.45 times less return on investment than China Automotive. But when comparing it to its historical volatility, Microsoft is 2.74 times less risky than China Automotive. It trades about 0.01 of its potential returns per unit of risk. China Automotive Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 317.00 in China Automotive Systems on August 28, 2024 and sell it today you would earn a total of 118.00 from holding China Automotive Systems or generate 37.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. China Automotive Systems
Performance |
| Timeline |
| Microsoft |
| China Automotive Systems |
Microsoft and China Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Automotive
The main advantage of trading using opposite Microsoft and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Automotive 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 China Automotive will offset losses from the drop in China Automotive's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
| China Automotive vs. Dorman Products | China Automotive vs. Monro Muffler Brake | China Automotive vs. Standard Motor Products | China Automotive vs. Stoneridge |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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