Correlation Between Microsoft and Dover
Can any of the company-specific risk be diversified away by investing in both Microsoft and Dover 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 Dover into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Dover, you can compare the effects of market volatilities on Microsoft and Dover 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 Dover. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Dover.
Diversification Opportunities for Microsoft and Dover
Significant diversification
The 3 months correlation between Microsoft and Dover is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Dover in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dover 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 Dover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dover has no effect on the direction of Microsoft i.e., Microsoft and Dover go up and down completely randomly.
Pair Corralation between Microsoft and Dover
Given the investment horizon of 90 days Microsoft is expected to under-perform the Dover. In addition to that, Microsoft is 1.55 times more volatile than Dover. It trades about -0.04 of its total potential returns per unit of risk. Dover is currently generating about 0.34 per unit of volatility. If you would invest 18,722 in Dover on November 9, 2024 and sell it today you would earn a total of 1,744 from holding Dover or generate 9.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Dover
Performance |
| Timeline |
| Microsoft |
| Dover |
Microsoft and Dover Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Dover
The main advantage of trading using opposite Microsoft and Dover positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Dover 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 Dover will offset losses from the drop in Dover's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Adobe Systems Incorporated | Microsoft vs. Crowdstrike Holdings |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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