Correlation Between Microsoft and Elbit Systems
Can any of the company-specific risk be diversified away by investing in both Microsoft and Elbit Systems 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 Elbit Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Elbit Systems, you can compare the effects of market volatilities on Microsoft and Elbit Systems 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 Elbit Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Elbit Systems.
Diversification Opportunities for Microsoft and Elbit Systems
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Elbit is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Elbit Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elbit Systems 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 Elbit Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elbit Systems has no effect on the direction of Microsoft i.e., Microsoft and Elbit Systems go up and down completely randomly.
Pair Corralation between Microsoft and Elbit Systems
Given the investment horizon of 90 days Microsoft is expected to generate 1.07 times less return on investment than Elbit Systems. But when comparing it to its historical volatility, Microsoft is 1.13 times less risky than Elbit Systems. It trades about 0.08 of its potential returns per unit of risk. Elbit Systems is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,886,949 in Elbit Systems on August 28, 2024 and sell it today you would earn a total of 3,371,051 from holding Elbit Systems or generate 57.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 77.78% |
| Values | Daily Returns |
Microsoft vs. Elbit Systems
Performance |
| Timeline |
| Microsoft |
| Elbit Systems |
Microsoft and Elbit Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Elbit Systems
The main advantage of trading using opposite Microsoft and Elbit Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Elbit Systems 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 Elbit Systems will offset losses from the drop in Elbit Systems' 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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