Correlation Between Microsoft and New Economy
Can any of the company-specific risk be diversified away by investing in both Microsoft and New Economy 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 New Economy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and New Economy Fund, you can compare the effects of market volatilities on Microsoft and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and New Economy.
Diversification Opportunities for Microsoft and New Economy
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and New is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Microsoft i.e., Microsoft and New Economy go up and down completely randomly.
Pair Corralation between Microsoft and New Economy
Given the investment horizon of 90 days Microsoft is expected to generate 1.43 times less return on investment than New Economy. In addition to that, Microsoft is 1.28 times more volatile than New Economy Fund. It trades about 0.06 of its total potential returns per unit of risk. New Economy Fund is currently generating about 0.11 per unit of volatility. If you would invest 5,222 in New Economy Fund on September 15, 2024 and sell it today you would earn a total of 1,622 from holding New Economy Fund or generate 31.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. New Economy Fund
Performance |
| Timeline |
| Microsoft |
| New Economy Fund |
Microsoft and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and New Economy
The main advantage of trading using opposite Microsoft and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| New Economy vs. Income Fund Of | New Economy vs. New World Fund | New Economy vs. American Mutual Fund | New Economy vs. American Mutual Fund |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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