Correlation Between Microsoft and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both Microsoft and Freeport McMoRan 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 Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Freeport McMoRan, you can compare the effects of market volatilities on Microsoft and Freeport McMoRan 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 Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Freeport McMoRan.
Diversification Opportunities for Microsoft and Freeport McMoRan
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Freeport is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Microsoft i.e., Microsoft and Freeport McMoRan go up and down completely randomly.
Pair Corralation between Microsoft and Freeport McMoRan
Given the investment horizon of 90 days Microsoft is expected to under-perform the Freeport McMoRan. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.96 times less risky than Freeport McMoRan. The stock trades about -0.08 of its potential returns per unit of risk. The Freeport McMoRan is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,643 in Freeport McMoRan on October 20, 2024 and sell it today you would earn a total of 298.00 from holding Freeport McMoRan or generate 8.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 90.0% |
| Values | Daily Returns |
Microsoft vs. Freeport McMoRan
Performance |
| Timeline |
| Microsoft |
| Freeport McMoRan |
Microsoft and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Freeport McMoRan
The main advantage of trading using opposite Microsoft and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Freeport McMoRan vs. Southern Copper | Freeport McMoRan vs. Antofagasta plc | Freeport McMoRan vs. First Quantum Minerals | Freeport McMoRan vs. KGHM Polska Miedz |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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