Correlation Between Microsoft and City National
Can any of the company-specific risk be diversified away by investing in both Microsoft and City National 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 City National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and City National Rochdale, you can compare the effects of market volatilities on Microsoft and City National 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 City National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and City National.
Diversification Opportunities for Microsoft and City National
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and City is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and City National Rochdale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City National Rochdale 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 City National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City National Rochdale has no effect on the direction of Microsoft i.e., Microsoft and City National go up and down completely randomly.
Pair Corralation between Microsoft and City National
Given the investment horizon of 90 days Microsoft is expected to generate 10.48 times more return on investment than City National. However, Microsoft is 10.48 times more volatile than City National Rochdale. It trades about 0.02 of its potential returns per unit of risk. City National Rochdale is currently generating about 0.12 per unit of risk. If you would invest 41,123 in Microsoft on September 3, 2024 and sell it today you would earn a total of 1,223 from holding Microsoft or generate 2.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. City National Rochdale
Performance |
| Timeline |
| Microsoft |
| City National Rochdale |
Microsoft and City National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and City National
The main advantage of trading using opposite Microsoft and City National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, City National 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 City National will offset losses from the drop in City National's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| City National vs. Fundvantage Trust | City National vs. Kinetics Market Opportunities | City National vs. Massmutual Select Diversified | City National vs. Templeton Developing Markets |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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