Correlation Between Microsoft and Taxable Municipal
Can any of the company-specific risk be diversified away by investing in both Microsoft and Taxable Municipal 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 Taxable Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Taxable Municipal Bond, you can compare the effects of market volatilities on Microsoft and Taxable Municipal 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 Taxable Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Taxable Municipal.
Diversification Opportunities for Microsoft and Taxable Municipal
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Taxable is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Taxable Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taxable Municipal Bond 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 Taxable Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taxable Municipal Bond has no effect on the direction of Microsoft i.e., Microsoft and Taxable Municipal go up and down completely randomly.
Pair Corralation between Microsoft and Taxable Municipal
Given the investment horizon of 90 days Microsoft is expected to generate 2.43 times more return on investment than Taxable Municipal. However, Microsoft is 2.43 times more volatile than Taxable Municipal Bond. It trades about 0.08 of its potential returns per unit of risk. Taxable Municipal Bond is currently generating about 0.03 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Taxable Municipal Bond
Performance |
| Timeline |
| Microsoft |
| Taxable Municipal Bond |
Microsoft and Taxable Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Taxable Municipal
The main advantage of trading using opposite Microsoft and Taxable Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Taxable Municipal 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 Taxable Municipal will offset losses from the drop in Taxable Municipal's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Taxable Municipal vs. Victory Strategic Allocation | Taxable Municipal vs. Alternative Asset Allocation | Taxable Municipal vs. Goldman Sachs Large | Taxable Municipal vs. T Rowe Price |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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