Correlation Between Microsoft and New Perspective
Can any of the company-specific risk be diversified away by investing in both Microsoft and New Perspective 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 Perspective into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and New Perspective Fund, you can compare the effects of market volatilities on Microsoft and New Perspective 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 Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and New Perspective.
Diversification Opportunities for Microsoft and New Perspective
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and New is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Microsoft i.e., Microsoft and New Perspective go up and down completely randomly.
Pair Corralation between Microsoft and New Perspective
Given the investment horizon of 90 days Microsoft is expected to generate 1.78 times more return on investment than New Perspective. However, Microsoft is 1.78 times more volatile than New Perspective Fund. It trades about 0.15 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.2 per unit of risk. If you would invest 40,955 in Microsoft on September 2, 2024 and sell it today you would earn a total of 1,391 from holding Microsoft or generate 3.4% 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 Perspective Fund
Performance |
| Timeline |
| Microsoft |
| New Perspective |
Microsoft and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and New Perspective
The main advantage of trading using opposite Microsoft and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, New Perspective 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 Perspective will offset losses from the drop in New Perspective's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| New Perspective vs. Wisdomtree Siegel Moderate | New Perspective vs. Qs Moderate Growth | New Perspective vs. Tiaa Cref Lifestyle Moderate | New Perspective vs. Franklin Lifesmart Retirement |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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