Correlation Between Microsoft and Designer Brands
Can any of the company-specific risk be diversified away by investing in both Microsoft and Designer Brands 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 Designer Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Designer Brands, you can compare the effects of market volatilities on Microsoft and Designer Brands 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 Designer Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Designer Brands.
Diversification Opportunities for Microsoft and Designer Brands
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Designer is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands 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 Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Microsoft i.e., Microsoft and Designer Brands go up and down completely randomly.
Pair Corralation between Microsoft and Designer Brands
Given the investment horizon of 90 days Microsoft is expected to generate 0.64 times more return on investment than Designer Brands. However, Microsoft is 1.56 times less risky than Designer Brands. It trades about -0.06 of its potential returns per unit of risk. Designer Brands is currently generating about -0.3 per unit of risk. If you would invest 42,375 in Microsoft on August 24, 2024 and sell it today you would lose (1,088) from holding Microsoft or give up 2.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Designer Brands
Performance |
| Timeline |
| Microsoft |
| Designer Brands |
Microsoft and Designer Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Designer Brands
The main advantage of trading using opposite Microsoft and Designer Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Designer Brands 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 Designer Brands will offset losses from the drop in Designer Brands' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Designer Brands vs. Wolverine World Wide | Designer Brands vs. Weyco Group | Designer Brands vs. Steven Madden | Designer Brands vs. Rocky Brands |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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