Correlation Between Microsoft and ETP
Can any of the company-specific risk be diversified away by investing in both Microsoft and ETP 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 ETP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and ETP, you can compare the effects of market volatilities on Microsoft and ETP 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 ETP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and ETP.
Diversification Opportunities for Microsoft and ETP
Good diversification
The 3 months correlation between Microsoft and ETP is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and ETP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETP 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 ETP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETP has no effect on the direction of Microsoft i.e., Microsoft and ETP go up and down completely randomly.
Pair Corralation between Microsoft and ETP
Given the investment horizon of 90 days Microsoft is expected to generate 23.92 times less return on investment than ETP. But when comparing it to its historical volatility, Microsoft is 27.97 times less risky than ETP. It trades about 0.08 of its potential returns per unit of risk. ETP is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2.59 in ETP on August 28, 2024 and sell it today you would earn a total of 0.71 from holding ETP or generate 27.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 60.2% |
| Values | Daily Returns |
Microsoft vs. ETP
Performance |
| Timeline |
| Microsoft |
| ETP |
Microsoft and ETP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and ETP
The main advantage of trading using opposite Microsoft and ETP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, ETP 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 ETP will offset losses from the drop in ETP's long position.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Paysafe |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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