Correlation Between Microsoft and EDP Renovaveis
Can any of the company-specific risk be diversified away by investing in both Microsoft and EDP Renovaveis 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 EDP Renovaveis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and EDP Renovaveis, you can compare the effects of market volatilities on Microsoft and EDP Renovaveis 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 EDP Renovaveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and EDP Renovaveis.
Diversification Opportunities for Microsoft and EDP Renovaveis
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and EDP is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and EDP Renovaveis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovaveis 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 EDP Renovaveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovaveis has no effect on the direction of Microsoft i.e., Microsoft and EDP Renovaveis go up and down completely randomly.
Pair Corralation between Microsoft and EDP Renovaveis
Given the investment horizon of 90 days Microsoft is expected to generate 0.56 times more return on investment than EDP Renovaveis. However, Microsoft is 1.78 times less risky than EDP Renovaveis. It trades about 0.1 of its potential returns per unit of risk. EDP Renovaveis is currently generating about -0.05 per unit of risk. If you would invest 22,130 in Microsoft on August 28, 2024 and sell it today you would earn a total of 19,749 from holding Microsoft or generate 89.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 85.71% |
| Values | Daily Returns |
Microsoft vs. EDP Renovaveis
Performance |
| Timeline |
| Microsoft |
| EDP Renovaveis |
Microsoft and EDP Renovaveis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and EDP Renovaveis
The main advantage of trading using opposite Microsoft and EDP Renovaveis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, EDP Renovaveis 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 EDP Renovaveis will offset losses from the drop in EDP Renovaveis' long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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