Correlation Between Microsoft and Fortis
Can any of the company-specific risk be diversified away by investing in both Microsoft and Fortis 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 Fortis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Fortis Inc, you can compare the effects of market volatilities on Microsoft and Fortis 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 Fortis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Fortis.
Diversification Opportunities for Microsoft and Fortis
Modest diversification
The 3 months correlation between Microsoft and Fortis is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Fortis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Inc 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 Fortis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortis Inc has no effect on the direction of Microsoft i.e., Microsoft and Fortis go up and down completely randomly.
Pair Corralation between Microsoft and Fortis
Given the investment horizon of 90 days Microsoft is expected to generate 1.4 times more return on investment than Fortis. However, Microsoft is 1.4 times more volatile than Fortis Inc. It trades about 0.06 of its potential returns per unit of risk. Fortis Inc is currently generating about 0.05 per unit of risk. If you would invest 32,151 in Microsoft on August 31, 2024 and sell it today you would earn a total of 10,195 from holding Microsoft or generate 31.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Microsoft vs. Fortis Inc
Performance |
| Timeline |
| Microsoft |
| Fortis Inc |
Microsoft and Fortis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Fortis
The main advantage of trading using opposite Microsoft and Fortis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Fortis 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 Fortis will offset losses from the drop in Fortis' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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