Correlation Between Microsoft and Capital Management
Can any of the company-specific risk be diversified away by investing in both Microsoft and Capital Management 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 Capital Management into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Capital Management Mid Cap, you can compare the effects of market volatilities on Microsoft and Capital Management 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 Capital Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Capital Management.
Diversification Opportunities for Microsoft and Capital Management
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Capital is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital Management Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Management Mid 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 Capital Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Management Mid has no effect on the direction of Microsoft i.e., Microsoft and Capital Management go up and down completely randomly.
Pair Corralation between Microsoft and Capital Management
Given the investment horizon of 90 days Microsoft is expected to generate 1.72 times more return on investment than Capital Management. However, Microsoft is 1.72 times more volatile than Capital Management Mid Cap. It trades about 0.08 of its potential returns per unit of risk. Capital Management Mid Cap is currently generating about 0.06 per unit of risk. If you would invest 24,843 in Microsoft on September 1, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 76.57% |
| Values | Daily Returns |
Microsoft vs. Capital Management Mid Cap
Performance |
| Timeline |
| Microsoft |
| Capital Management Mid |
Microsoft and Capital Management Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Capital Management
The main advantage of trading using opposite Microsoft and Capital Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Capital Management 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 Capital Management will offset losses from the drop in Capital Management's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Capital Management vs. Calvert Developed Market | Capital Management vs. Calvert Short Duration | Capital Management vs. Calvert Short Duration | Capital Management vs. Calvert Short Duration |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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