Correlation Between Microsoft and Frontline
Can any of the company-specific risk be diversified away by investing in both Microsoft and Frontline 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 Frontline into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Frontline, you can compare the effects of market volatilities on Microsoft and Frontline 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 Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Frontline.
Diversification Opportunities for Microsoft and Frontline
Good diversification
The 3 months correlation between Microsoft and Frontline is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline 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 Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Microsoft i.e., Microsoft and Frontline go up and down completely randomly.
Pair Corralation between Microsoft and Frontline
Given the investment horizon of 90 days Microsoft is expected to generate 0.37 times more return on investment than Frontline. However, Microsoft is 2.72 times less risky than Frontline. It trades about 0.19 of its potential returns per unit of risk. Frontline is currently generating about -0.21 per unit of risk. If you would invest 40,554 in Microsoft on September 1, 2024 and sell it today you would earn a total of 1,792 from holding Microsoft or generate 4.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Frontline
Performance |
| Timeline |
| Microsoft |
| Frontline |
Microsoft and Frontline Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Frontline
The main advantage of trading using opposite Microsoft and Frontline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Frontline 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 Frontline will offset losses from the drop in Frontline's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Frontline vs. DnB ASA | Frontline vs. Mowi ASA | Frontline vs. Yara International ASA | Frontline vs. Telenor ASA |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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