Correlation Between Microsoft and Cloudweb
Can any of the company-specific risk be diversified away by investing in both Microsoft and Cloudweb 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 Cloudweb into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Cloudweb, you can compare the effects of market volatilities on Microsoft and Cloudweb 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 Cloudweb. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Cloudweb.
Diversification Opportunities for Microsoft and Cloudweb
Good diversification
The 3 months correlation between Microsoft and Cloudweb is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cloudweb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloudweb 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 Cloudweb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloudweb has no effect on the direction of Microsoft i.e., Microsoft and Cloudweb go up and down completely randomly.
Pair Corralation between Microsoft and Cloudweb
Given the investment horizon of 90 days Microsoft is expected to under-perform the Cloudweb. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 7.32 times less risky than Cloudweb. The stock trades about -0.04 of its potential returns per unit of risk. The Cloudweb is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 5.00 in Cloudweb on August 31, 2024 and sell it today you would lose (0.70) from holding Cloudweb or give up 14.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Cloudweb
Performance |
| Timeline |
| Microsoft |
| Cloudweb |
Microsoft and Cloudweb Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Cloudweb
The main advantage of trading using opposite Microsoft and Cloudweb positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Cloudweb 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 Cloudweb will offset losses from the drop in Cloudweb's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Cloudweb vs. Porsche Automobile Holding | Cloudweb vs. Ferrari NV | Cloudweb vs. Toyota Motor | Cloudweb vs. General Motors |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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