Correlation Between Microsoft and China Rare
Can any of the company-specific risk be diversified away by investing in both Microsoft and China Rare 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 China Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Rare Earth, you can compare the effects of market volatilities on Microsoft and China Rare 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 China Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China Rare.
Diversification Opportunities for Microsoft and China Rare
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Rare Earth 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 China Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Rare Earth has no effect on the direction of Microsoft i.e., Microsoft and China Rare go up and down completely randomly.
Pair Corralation between Microsoft and China Rare
Given the investment horizon of 90 days Microsoft is expected to under-perform the China Rare. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 3.22 times less risky than China Rare. The stock trades about -0.01 of its potential returns per unit of risk. The China Rare Earth is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5.00 in China Rare Earth on August 29, 2024 and sell it today you would earn a total of 0.00 from holding China Rare Earth or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. China Rare Earth
Performance |
| Timeline |
| Microsoft |
| China Rare Earth |
Microsoft and China Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China Rare
The main advantage of trading using opposite Microsoft and China Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China Rare 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 China Rare will offset losses from the drop in China Rare's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China Rare vs. Rockridge Resources | China Rare vs. Ameriwest Lithium | China Rare vs. Osisko Metals Incorporated | China Rare vs. Volt Lithium Corp |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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