Correlation Between Microsoft and General Dynamics
Can any of the company-specific risk be diversified away by investing in both Microsoft and General Dynamics 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 General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and General Dynamics, you can compare the effects of market volatilities on Microsoft and General Dynamics 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 General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and General Dynamics.
Diversification Opportunities for Microsoft and General Dynamics
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and General is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics 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 General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Microsoft i.e., Microsoft and General Dynamics go up and down completely randomly.
Pair Corralation between Microsoft and General Dynamics
Given the investment horizon of 90 days Microsoft is expected to generate 1.16 times less return on investment than General Dynamics. But when comparing it to its historical volatility, Microsoft is 1.01 times less risky than General Dynamics. It trades about 0.06 of its potential returns per unit of risk. General Dynamics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 19,225 in General Dynamics on August 31, 2024 and sell it today you would earn a total of 7,535 from holding General Dynamics or generate 39.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.16% |
| Values | Daily Returns |
Microsoft vs. General Dynamics
Performance |
| Timeline |
| Microsoft |
| General Dynamics |
Microsoft and General Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and General Dynamics
The main advantage of trading using opposite Microsoft and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, General Dynamics 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 General Dynamics will offset losses from the drop in General Dynamics' long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| General Dynamics vs. DICKS Sporting Goods | General Dynamics vs. Sporttotal AG | General Dynamics vs. EAGLE MATERIALS | General Dynamics vs. Summit Materials |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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