Correlation Between Microsoft and GrafTech International
Can any of the company-specific risk be diversified away by investing in both Microsoft and GrafTech International 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 GrafTech International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and GrafTech International, you can compare the effects of market volatilities on Microsoft and GrafTech International 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 GrafTech International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and GrafTech International.
Diversification Opportunities for Microsoft and GrafTech International
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and GrafTech is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and GrafTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrafTech International 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 GrafTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrafTech International has no effect on the direction of Microsoft i.e., Microsoft and GrafTech International go up and down completely randomly.
Pair Corralation between Microsoft and GrafTech International
Given the investment horizon of 90 days Microsoft is expected to generate 0.22 times more return on investment than GrafTech International. However, Microsoft is 4.46 times less risky than GrafTech International. It trades about 0.17 of its potential returns per unit of risk. GrafTech International is currently generating about -0.21 per unit of risk. If you would invest 41,879 in Microsoft on September 24, 2024 and sell it today you would earn a total of 1,781 from holding Microsoft or generate 4.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. GrafTech International
Performance |
| Timeline |
| Microsoft |
| GrafTech International |
Microsoft and GrafTech International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and GrafTech International
The main advantage of trading using opposite Microsoft and GrafTech International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, GrafTech International 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 GrafTech International will offset losses from the drop in GrafTech International's long position.| Microsoft vs. BlackBerry | Microsoft vs. Global Blue Group | Microsoft vs. Aurora Mobile | Microsoft vs. Marqeta |
| GrafTech International vs. Evolution Mining Limited | GrafTech International vs. American Airlines Group | GrafTech International vs. Clean Energy Fuels | GrafTech International vs. ALERION CLEANPOWER |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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