Correlation Between Microsoft and FAT Brands
Can any of the company-specific risk be diversified away by investing in both Microsoft and FAT Brands 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 FAT Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and FAT Brands, you can compare the effects of market volatilities on Microsoft and FAT Brands 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 FAT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and FAT Brands.
Diversification Opportunities for Microsoft and FAT Brands
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Microsoft and FAT is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands 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 FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Microsoft i.e., Microsoft and FAT Brands go up and down completely randomly.
Pair Corralation between Microsoft and FAT Brands
Given the investment horizon of 90 days Microsoft is expected to generate 1.01 times less return on investment than FAT Brands. But when comparing it to its historical volatility, Microsoft is 1.83 times less risky than FAT Brands. It trades about 0.02 of its potential returns per unit of risk. FAT Brands is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 548.00 in FAT Brands on September 2, 2024 and sell it today you would lose (1.00) from holding FAT Brands or give up 0.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. FAT Brands
Performance |
| Timeline |
| Microsoft |
| FAT Brands |
Microsoft and FAT Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and FAT Brands
The main advantage of trading using opposite Microsoft and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, FAT Brands 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 FAT Brands will offset losses from the drop in FAT Brands' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| FAT Brands vs. FAT Brands | FAT Brands vs. Cannae Holdings | FAT Brands vs. Nathans Famous | FAT Brands vs. Dine Brands Global |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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