Correlation Between Microsoft and European Residential
Can any of the company-specific risk be diversified away by investing in both Microsoft and European Residential 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 European Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and European Residential Real, you can compare the effects of market volatilities on Microsoft and European Residential 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 European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and European Residential.
Diversification Opportunities for Microsoft and European Residential
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Microsoft and European is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real 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 European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Microsoft i.e., Microsoft and European Residential go up and down completely randomly.
Pair Corralation between Microsoft and European Residential
Given the investment horizon of 90 days Microsoft is expected to generate 11.71 times less return on investment than European Residential. But when comparing it to its historical volatility, Microsoft is 1.96 times less risky than European Residential. It trades about 0.03 of its potential returns per unit of risk. European Residential Real is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 271.00 in European Residential Real on August 28, 2024 and sell it today you would earn a total of 92.00 from holding European Residential Real or generate 33.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Microsoft vs. European Residential Real
Performance |
| Timeline |
| Microsoft |
| European Residential Real |
Microsoft and European Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and European Residential
The main advantage of trading using opposite Microsoft and European Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, European Residential 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 European Residential will offset losses from the drop in European Residential's 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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