Correlation Between Microsoft and Connecticut Light
Can any of the company-specific risk be diversified away by investing in both Microsoft and Connecticut Light 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 Connecticut Light into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and The Connecticut Light, you can compare the effects of market volatilities on Microsoft and Connecticut Light 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 Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Connecticut Light.
Diversification Opportunities for Microsoft and Connecticut Light
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Connecticut is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Microsoft i.e., Microsoft and Connecticut Light go up and down completely randomly.
Pair Corralation between Microsoft and Connecticut Light
Given the investment horizon of 90 days Microsoft is expected to generate 0.9 times more return on investment than Connecticut Light. However, Microsoft is 1.11 times less risky than Connecticut Light. It trades about 0.17 of its potential returns per unit of risk. The Connecticut Light is currently generating about -0.07 per unit of risk. If you would invest 40,764 in Microsoft on September 3, 2024 and sell it today you would earn a total of 1,582 from holding Microsoft or generate 3.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. The Connecticut Light
Performance |
| Timeline |
| Microsoft |
| Connecticut Light |
Microsoft and Connecticut Light Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Connecticut Light
The main advantage of trading using opposite Microsoft and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Connecticut Light 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 Connecticut Light will offset losses from the drop in Connecticut Light's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Connecticut Light vs. The Connecticut Light | Connecticut Light vs. The Connecticut Light | Connecticut Light vs. PacifiCorp | Connecticut Light vs. Nextera Energy |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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