Correlation Between Microsoft and Cavotec SA
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cavotec SA 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 Cavotec SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cavotec SA, you can compare the effects of market volatilities on Microsoft and Cavotec SA 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 Cavotec SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cavotec SA.
Diversification Opportunities for Microsoft and Cavotec SA
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Cavotec is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cavotec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavotec SA 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 Cavotec SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavotec SA has no effect on the direction of Microsoft i.e., Microsoft and Cavotec SA go up and down completely randomly.
Pair Corralation between Microsoft and Cavotec SA
Given the investment horizon of 90 days Microsoft is expected to under-perform the Cavotec SA. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.73 times less risky than Cavotec SA. The stock trades about -0.09 of its potential returns per unit of risk. The Cavotec SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,690 in Cavotec SA on November 30, 2024 and sell it today you would earn a total of 120.00 from holding Cavotec SA or generate 7.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.62% |
| Values | Daily Returns |
Microsoft vs. Cavotec SA
Performance |
| Timeline |
| Microsoft |
| Cavotec SA |
Microsoft and Cavotec SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cavotec SA
The main advantage of trading using opposite Microsoft and Cavotec SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cavotec SA 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 Cavotec SA will offset losses from the drop in Cavotec SA's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Cavotec SA vs. Bufab Holding AB | Cavotec SA vs. Nederman Holding AB | Cavotec SA vs. COOR Service Management | Cavotec SA vs. Alimak Hek Group |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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