Correlation Between Microsoft and Federated Hermes
Can any of the company-specific risk be diversified away by investing in both Microsoft and Federated Hermes 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 Federated Hermes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Federated Hermes Sdg, you can compare the effects of market volatilities on Microsoft and Federated Hermes 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 Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Federated Hermes.
Diversification Opportunities for Microsoft and Federated Hermes
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Microsoft and Federated is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Federated Hermes Sdg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Sdg 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 Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Sdg has no effect on the direction of Microsoft i.e., Microsoft and Federated Hermes go up and down completely randomly.
Pair Corralation between Microsoft and Federated Hermes
Given the investment horizon of 90 days Microsoft is expected to generate 1.6 times more return on investment than Federated Hermes. However, Microsoft is 1.6 times more volatile than Federated Hermes Sdg. It trades about 0.08 of its potential returns per unit of risk. Federated Hermes Sdg is currently generating about 0.05 per unit of risk. If you would invest 25,277 in Microsoft on September 3, 2024 and sell it today you would earn a total of 17,821 from holding Microsoft or generate 70.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Federated Hermes Sdg
Performance |
| Timeline |
| Microsoft |
| Federated Hermes Sdg |
Microsoft and Federated Hermes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Federated Hermes
The main advantage of trading using opposite Microsoft and Federated Hermes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Federated Hermes 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 Federated Hermes will offset losses from the drop in Federated Hermes' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Federated Hermes vs. American Funds Smallcap | Federated Hermes vs. American Fds Smallcap | Federated Hermes vs. Smallcap World Fund | Federated Hermes vs. Smallcap World Fund |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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