Correlation Between Microsoft and China DatangRenewable
Can any of the company-specific risk be diversified away by investing in both Microsoft and China DatangRenewable 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 DatangRenewable into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and China Datang, you can compare the effects of market volatilities on Microsoft and China DatangRenewable 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 DatangRenewable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and China DatangRenewable.
Diversification Opportunities for Microsoft and China DatangRenewable
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and China is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and China Datang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China DatangRenewable 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 DatangRenewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China DatangRenewable has no effect on the direction of Microsoft i.e., Microsoft and China DatangRenewable go up and down completely randomly.
Pair Corralation between Microsoft and China DatangRenewable
Given the investment horizon of 90 days Microsoft is expected to generate 1.45 times less return on investment than China DatangRenewable. But when comparing it to its historical volatility, Microsoft is 3.34 times less risky than China DatangRenewable. It trades about 0.09 of its potential returns per unit of risk. China Datang is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 15.00 in China Datang on September 3, 2024 and sell it today you would earn a total of 8.00 from holding China Datang or generate 53.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.14% |
| Values | Daily Returns |
Microsoft vs. China Datang
Performance |
| Timeline |
| Microsoft |
| China DatangRenewable |
Microsoft and China DatangRenewable Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and China DatangRenewable
The main advantage of trading using opposite Microsoft and China DatangRenewable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, China DatangRenewable 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 DatangRenewable will offset losses from the drop in China DatangRenewable's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| China DatangRenewable vs. The Southern | China DatangRenewable vs. VERBUND AG | China DatangRenewable vs. American Electric Power | China DatangRenewable vs. Xcel 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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