Correlation Between Microsoft and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Microsoft and Colgate Palmolive 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 Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Colgate Palmolive, you can compare the effects of market volatilities on Microsoft and Colgate Palmolive 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 Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Colgate Palmolive.
Diversification Opportunities for Microsoft and Colgate Palmolive
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Colgate is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive 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 Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of Microsoft i.e., Microsoft and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Microsoft and Colgate Palmolive
Given the investment horizon of 90 days Microsoft is expected to under-perform the Colgate Palmolive. In addition to that, Microsoft is 1.29 times more volatile than Colgate Palmolive. It trades about -0.04 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about -0.01 per unit of volatility. If you would invest 9,574 in Colgate Palmolive on August 28, 2024 and sell it today you would lose (40.00) from holding Colgate Palmolive or give up 0.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Colgate Palmolive
Performance |
| Timeline |
| Microsoft |
| Colgate Palmolive |
Microsoft and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Colgate Palmolive
The main advantage of trading using opposite Microsoft and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Colgate Palmolive 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 Colgate Palmolive will offset losses from the drop in Colgate Palmolive's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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