Correlation Between Microsoft and Capital World
Can any of the company-specific risk be diversified away by investing in both Microsoft and Capital World 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 Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Capital World Growth, you can compare the effects of market volatilities on Microsoft and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Capital World.
Diversification Opportunities for Microsoft and Capital World
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Capital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Microsoft i.e., Microsoft and Capital World go up and down completely randomly.
Pair Corralation between Microsoft and Capital World
Given the investment horizon of 90 days Microsoft is expected to under-perform the Capital World. In addition to that, Microsoft is 1.35 times more volatile than Capital World Growth. It trades about -0.21 of its total potential returns per unit of risk. Capital World Growth is currently generating about -0.05 per unit of volatility. If you would invest 6,603 in Capital World Growth on December 1, 2024 and sell it today you would lose (51.00) from holding Capital World Growth or give up 0.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Capital World Growth
Performance |
| Timeline |
| Microsoft |
| Capital World Growth |
Microsoft and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Capital World
The main advantage of trading using opposite Microsoft and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
| Capital World vs. Old Westbury Short Term | Capital World vs. Delaware Investments Ultrashort | Capital World vs. Touchstone Ultra Short | Capital World vs. Metropolitan West Ultra |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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