Correlation Between Microsoft and Etsy
Can any of the company-specific risk be diversified away by investing in both Microsoft and Etsy 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 Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Etsy Inc, you can compare the effects of market volatilities on Microsoft and Etsy 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 Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Etsy.
Diversification Opportunities for Microsoft and Etsy
Good diversification
The 3 months correlation between Microsoft and Etsy is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc 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 Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Microsoft i.e., Microsoft and Etsy go up and down completely randomly.
Pair Corralation between Microsoft and Etsy
Given the investment horizon of 90 days Microsoft is expected to under-perform the Etsy. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.43 times less risky than Etsy. The stock trades about -0.05 of its potential returns per unit of risk. The Etsy Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,889 in Etsy Inc on August 27, 2024 and sell it today you would earn a total of 127.00 from holding Etsy Inc or generate 6.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 90.48% |
| Values | Daily Returns |
Microsoft vs. Etsy Inc
Performance |
| Timeline |
| Microsoft |
| Etsy Inc |
Microsoft and Etsy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Etsy
The main advantage of trading using opposite Microsoft and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
| Etsy vs. Fidelity National Information | Etsy vs. Automatic Data Processing | Etsy vs. Bio Techne | Etsy vs. Dell Technologies |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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