Correlation Between Microsoft and Parametric Modity
Can any of the company-specific risk be diversified away by investing in both Microsoft and Parametric Modity 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 Parametric Modity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Parametric Modity Strategy, you can compare the effects of market volatilities on Microsoft and Parametric Modity 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 Parametric Modity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Parametric Modity.
Diversification Opportunities for Microsoft and Parametric Modity
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and Parametric is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Parametric Modity Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parametric Modity 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 Parametric Modity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parametric Modity has no effect on the direction of Microsoft i.e., Microsoft and Parametric Modity go up and down completely randomly.
Pair Corralation between Microsoft and Parametric Modity
Given the investment horizon of 90 days Microsoft is expected to generate 1.51 times more return on investment than Parametric Modity. However, Microsoft is 1.51 times more volatile than Parametric Modity Strategy. It trades about 0.17 of its potential returns per unit of risk. Parametric Modity Strategy is currently generating about -0.02 per unit of risk. If you would invest 40,764 in Microsoft on September 3, 2024 and sell it today you would earn a total of 1,582 from holding Microsoft or generate 3.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Parametric Modity Strategy
Performance |
| Timeline |
| Microsoft |
| Parametric Modity |
Microsoft and Parametric Modity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Parametric Modity
The main advantage of trading using opposite Microsoft and Parametric Modity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Parametric Modity 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 Parametric Modity will offset losses from the drop in Parametric Modity's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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