Correlation Between Microsoft and American Funds
Can any of the company-specific risk be diversified away by investing in both Microsoft and American Funds 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 American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and American Funds 2040, you can compare the effects of market volatilities on Microsoft and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and American Funds.
Diversification Opportunities for Microsoft and American Funds
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Microsoft and American is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and American Funds 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2040 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2040 has no effect on the direction of Microsoft i.e., Microsoft and American Funds go up and down completely randomly.
Pair Corralation between Microsoft and American Funds
Given the investment horizon of 90 days Microsoft is expected to generate 1.65 times less return on investment than American Funds. In addition to that, Microsoft is 2.19 times more volatile than American Funds 2040. It trades about 0.02 of its total potential returns per unit of risk. American Funds 2040 is currently generating about 0.07 per unit of volatility. If you would invest 2,066 in American Funds 2040 on August 25, 2024 and sell it today you would earn a total of 53.00 from holding American Funds 2040 or generate 2.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.46% |
| Values | Daily Returns |
Microsoft vs. American Funds 2040
Performance |
| Timeline |
| Microsoft |
| American Funds 2040 |
Microsoft and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and American Funds
The main advantage of trading using opposite Microsoft and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| American Funds vs. American Funds 2035 | American Funds vs. American Funds 2045 | American Funds vs. American Funds 2030 | American Funds vs. American Funds 2050 |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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