Correlation Between Microsoft and Prudential Emerging
Can any of the company-specific risk be diversified away by investing in both Microsoft and Prudential Emerging 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 Prudential Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Prudential Emerging Markets, you can compare the effects of market volatilities on Microsoft and Prudential Emerging 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 Prudential Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Prudential Emerging.
Diversification Opportunities for Microsoft and Prudential Emerging
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and Prudential is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Prudential Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Emerging 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 Prudential Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Emerging has no effect on the direction of Microsoft i.e., Microsoft and Prudential Emerging go up and down completely randomly.
Pair Corralation between Microsoft and Prudential Emerging
Given the investment horizon of 90 days Microsoft is expected to generate 3.18 times more return on investment than Prudential Emerging. However, Microsoft is 3.18 times more volatile than Prudential Emerging Markets. It trades about 0.07 of its potential returns per unit of risk. Prudential Emerging Markets is currently generating about 0.04 per unit of risk. If you would invest 39,872 in Microsoft on September 18, 2024 and sell it today you would earn a total of 5,574 from holding Microsoft or generate 13.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.4% |
| Values | Daily Returns |
Microsoft vs. Prudential Emerging Markets
Performance |
| Timeline |
| Microsoft |
| Prudential Emerging |
Microsoft and Prudential Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Prudential Emerging
The main advantage of trading using opposite Microsoft and Prudential Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Prudential Emerging 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 Prudential Emerging will offset losses from the drop in Prudential Emerging's long position.| Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta | Microsoft vs. Nextnav Acquisition Corp |
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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